The Special Employee – Statutory Employee

We have written before that in the realm of federal tax law, there two type of working individuals, the employee and the independent/self-employed contractor. Once again, an employee/employer relationship would exist, if there is respondeat superior, or if an individual is subject to the command and control of another. If there is an employer/employee relationship, of course income tax, as well as Social Security and Medicare taxes, must be withheld from the employees pay check, and the employer would need to make payroll tax deposits of his/her employees, at least on a monthly basis. However, there are special employees that could “bifurcate” the withholding issue, called a “statutory employee”.

A statutory employee is a special type of employee (which is usually with insurance agents, drivers, etc.), where such a person:

  • Services must be personally performed by him/her;
  • The person does not have substantial investment in the equipment and property used to perform the services; and
  • The services are performed on a continuing basis for the same payer

What happens with such an employee is that he/she is considered to be an employee for Social Security and Medicare purposes, but still retain his/her character that he/she is a self-employed/independent contractor for income tax purposes. Thusly, only Social Security and Medicare taxes are being withheld (the person still gets a W-2 tax form), and that the employee would not be subject to self-employment tax, because the payor is being the employer’s share of Social Security and Medicare taxes, and of course the employee’s share of Social Security and Medicare taxes are being withheld from the person’s pay.

So, if you think you should one of these special employees, or have individuals that should considered to be one of these special/statutory employees, then let us know at info@kayatax.com, and we would be more than happy to see if you or any of your people should be statutory employees.