Definition

Statutory employees occupy a sort of middle ground between independent contractors and regular employees. They can be defined as workers in certain occupations who would not be considered employees under the usual rules, but who have been declared employees under the federal tax laws so that their employers must withhold FICA taxes on their income. Statutory employees are entitled to deduct their business expenses on Schedule C, and must pay income taxes on their net income since their employers are not required to withhold income taxes from their pay.

See the IRS description Statutory Employees and Publication 15-A, for details.

Data Entry

Wages and expenses for statutory employees should be entered in the following manner:

Enter the wages on the W-2 as you normally would, then be sure to:

• Select the Statutory Employee box on line 13, and select the Schedule C code from the Special Tax Treatment drop list that matches to this employee.

  • Making one entry, but not both, generates EF Message 5219.

• Enter all the expenses on the correct C screen for the employee. See the Schedule C instructions for details.