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I’m a statutory employee, why do I have a Schedule C?

When you are a statutory employee you are considered an employee for Social Security and Medicare taxes but for most of your federal income taxes you are considered an independent contractor.

As a statutory employee, your employer will withhold social security and medicare taxes from your wages and you will not need to pay self-employment taxes. You can also deduct your business expenses from your W-2 earnings using Schedule C.

When you enter a W-2 with the Statutory employee box checked, Credit Karma Tax will generate a Schedule C for your tax return. You can go into the Schedule C section to enter any business expenses you can deduct from your statutory W-2 wages.

According to the IRS, the following types of employees may be considered statutory employees:

  • Drivers who distribute 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 an agent or is paid on commission.
  • Full-time life insurance sales agents whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
  • Individual who work at home on materials or goods that the employer supplies and that must be returned to the employer or to a person they designate, if the employer also furnishes specifications for the work to be done.
  • Full-time traveling or city salesperson who work on behalf of the employer and turns in orders from wholesalers, retailers, contractors, 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 must be the salesperson's principal business activity.

To have Social Security and Medicare taxes withheld, statutory employees must also meet all of the following qualifications:

  • The employee personally performed the duties or services for which they were paid
  • The employee does not have a substantial investment in the equipment or property used to perform their duties
  • The work the employee did was on a continuing basis for the same employer

Source: irs.gov

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