If workers are independent contractors under the common law rules, such workers may be treated as employees by statute (statutory employees)
for certain employment tax purposes if they fall within any of the
following four categories and meet the three conditions described under Social Security and Medicare taxes, below.
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 and 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.
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.
Withhold
Social Security and Medicare taxes from the wages of statutory
employees if all three of the following conditions apply.
1. Their service contract states or implies that substantially all the services are to be performed personally by them.
2. They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities).
3. The services are performed on a continuing basis for the same payer.
In addition, for an exempt organization, the most common employees in the category of "statutory employee" are its officers.
The
employer should indicate on the worker's Form W-2 whether the worker is
classified as a statutory employee in box 13. Statutory employees
report their wages, income, and allowable expenses on Schedule C (or Schedule C-EZ),
along with filing federal Form 1040. Statutory employees are not liable
for self-employment tax because their employers must treat them as
employees for social security tax purposes.
