Page 8 - Employers Supplemental Guide

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Statutory Employees ployee as “other compensation” in box 1. Also, show so-
cial security wages in box 3, social security tax withheld in
If workers are independent contractors under the box 4, Medicare wages in box 5, and Medicare tax with-
common-law rules, such workers may nevertheless be held in box 6. The statutory employee can deduct his or
treated as employees by statute, (also known as “statu- her trade or business expenses from the payments shown
tory employees”) for certain employment tax purposes. on Form W-2. The statutory employee reports earnings on
This would happen if they fall within any one of the follow- line 1 of Schedule C (Form 1040 or 1040-SR), Profit or
ing four categories and meet the three conditions descri- Loss From Business, and also deducts business expen-
bed next under Social security and Medicare taxes. ses on Schedule C (Form 1040 or 1040-SR).

1. A driver who distributes beverages (other than milk) H-2A agricultural workers. On Form W-2, don't check
or meat, vegetable, fruit, or bakery products; or who box 13 (Statutory employee), as H-2A workers aren't stat-
picks up and delivers laundry or dry cleaning, if the utory employees.
driver is your agent or is paid on commission.
2. A full-time life insurance sales agent whose principal Statutory Nonemployees
business activity is selling life insurance or annuity
contracts, or both, primarily for one life insurance There are three categories of statutory nonemployees: di-
company. rect sellers, licensed real estate agents, and certain com-
3. An individual who works at home on materials or panion sitters. Direct sellers and licensed real estate
goods that you supply and that must be returned to agents are treated as self-employed for all federal tax pur-
poses, including income and employment taxes, if:
you or to a person you name, if you also furnish speci-
fications for the work to be done. • Substantially all payments for their services as direct
4. A full-time traveling or city salesperson who works on sellers or real estate agents are directly related to
sales or other output, rather than to the number of
your behalf and turns in orders to you from wholesal- hours worked, and
ers, retailers, contractors, or operators of hotels, res-
taurants, or other similar establishments. The goods • Their services are performed under a written contract
sold must be merchandise for resale or supplies for providing that they won't be treated as employees for
use in the buyer's business operation. The work per- federal tax purposes.
formed for you must be the salesperson's principal
business activity. See Salesperson in section 2. Direct sellers. Direct sellers include persons falling
within any of the following three groups.
Social security and Medicare taxes. You must with- 1. Persons engaged in selling (or soliciting the sale of)
hold social security and Medicare taxes from the wages of consumer products in the home or place of business
statutory employees if all three of the following conditions other than in a permanent retail establishment.
apply.
• The service contract states or implies that substan- 2. Persons engaged in selling (or soliciting the sale of)
consumer products to any buyer on a buy-sell basis, a
tially all the services are to be performed personally by deposit-commission basis, or any similar basis pre-
them. scribed by regulations, for resale in the home or at a
• They don't have a substantial investment in the equip- place of business other than in a permanent retail es-
ment and property used to perform the services (other tablishment.
than an investment in facilities for transportation, such
as a car or truck). 3. Persons engaged in the trade or business of deliver-
ing or distributing newspapers or shopping news (in-
• The services are performed on a continuing basis for cluding any services directly related to such delivery
the same payer. or distribution).
Federal unemployment (FUTA) tax. For FUTA tax (the Direct selling includes activities of individuals who at-
unemployment tax paid under the Federal Unemployment tempt to increase direct sales activities of their direct sell-
Tax Act), the term “employee” means the same as it does ers and who earn income based on the productivity of
for social security and Medicare taxes, except that it their direct sellers. Such activities include providing moti-
doesn't include statutory employees defined in categories vation and encouragement; imparting skills, knowledge, or
2 and 3 above. Any individual who is a statutory employee experience; and recruiting.
described under category 1 or 4 above is also an em-
ployee for FUTA tax purposes and subject to FUTA tax. Licensed real estate agents. This category includes in-
dividuals engaged in appraisal activities for real estate
Income tax. Don't withhold federal income tax from the sales if they earn income based on sales or other output.
wages of statutory employees.
Companion sitters. Companion sitters are individuals
Reporting payments to statutory employees. Furnish who furnish personal attendance, companionship, or
Form W-2 to a statutory employee, and check “Statutory household care services to children or to individuals who
employee” in box 13. Show your payments to the em- are elderly or disabled. A person engaged in the trade or

Page 6 Publication 15-A (2020)