Uncle Sam Grinch can be green with greed often. The “statutory employee” is certainly one of those areas.
What is a statutory employee? IRS defines them as independent contractors that may be treated as employees for employment tax purposes. Oh blessed charitable spirit of the IRS! The taxpayer may be treated as employees for the 15.3 payroll tax. It should read have to be treated as employees.
This is a win for the IRS. They make it sound as if people have wanted this all along. The IRS has basically said, by all aspects of the law you are an independent contractor. However, we still want you to pay payroll tax on your gross earnings. One website makes this sound like a good thing. “Because statutory employees pay FICA tax through their employer, they are not liable for self-employment tax.” (Uh….they are pretty much the same thing genius.) That’s like saying, “because they pay FICA taxes as if they were a w-2 employee, they don’t have to pay the FICA tax a second time through the self-employment tax.
Because they are really independent contractors, a statutory employee can deduct expenses on a schedule C (like a sole proprietor or 1099 contractor) instead of on Schedule A. This is just a silver lining. They are already paying FICA tax on the full amount of earned income. Investopedia seems happy about this. “Statutory employees are granted a greater tax deduction for their business expenses than other employees.” Are they forgetting these are people that by law are independent contractors? As an independent contractor, they can write off their business expenses already.
Luckily only a few select industries have seem to upset the politicians that write tax code so far. So only 4 groups are penalized. Agent drivers (like food delivery drivers); Full time life insurance sales people; people who work at home on materials or supplies the company provides; travelling sales people who solicit orders.
While being a statutory employee is better than being a normal w-2 employee. It’s far worse than being an independent contractor. (Which by law they technically are already.) So really it’s a punishment.