Statutory employees

If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute (statutory employees) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described next under Social Security and Medicare taxes.

1. A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission;
2. A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company;
3. An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name if you also furnish specifications for the work to be done; or
4. A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson's principal business activity.

Determine if a salesperson is a statutory employee with guidance in Publication 15-A, Employer’s Supplemental Tax Guide.

Social Security and Medicare taxes

Withhold Social Security and Medicare taxes from the wages of statutory employees if all three of the following conditions apply:

• The service contract states or implies that substantially all the services are to be performed personally by them;
• They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities); and
• The services are performed on a continuing basis for the same payer.

Income tax

Do not withhold federal income tax from the wages of statutory employees.

Federal unemployment (FUTA) tax and reporting payments to statutory employees

Publication 15-A provides information on federal unemployment tax treatment and reporting payments to statutory employees.

Statutory employees reporting income and expenses

Refer to Instructions to Schedule C (Form 1040), Profit or Loss From Business, for guidance on how statutory employees report income and expenses.