Unknown Statutory Employee

[Snaggletooth]

Some small employers don't even know what a statutory employee is.

What is the result if an employee meets all the qualifications of a statutory employee, but his W-2 is NOT marked in box 13?

The 2106 for this guy is huge (some 40% of his taxable income). His W-2 does include a $600/month stipend for use of his vehicle but in no way does this reimburse the employee for his extended usage.

[ATSMAN]

Some small employers don't even know what a statutory employee is.

What is the result if an employee meets all the qualifications of a statutory employee, but his W-2 is NOT marked in box 13?

The 2106 for this guy is huge (some 40% of his taxable income). His W-2 does include a $600/month stipend for use of his vehicle but in no way does this reimburse the employee for his extended usage.

Unless taxpayer can get a corrected W2 with the statutory employee box checked, I would not process it as a stat. employee on Sch C.

If his employer requires the use of his own vehicle for employer's business then there must be some agreement or written employer direction. Is the 600/month a flat rate regardless of mileage? There are more questions than answers.

I have several outside salespeople that get W2 with the stat employee box marked and they have to bear all business expenses including mileage based on written employment agreement.

[Burke]

My experience with statutory employees (there are not that many occupations which qualify), has been that an employee contract to that effect exists. Ask for it. And if that meets the definition of a statutory employee, get a corrected W-2. If there is no such written contract, it will probably not be honored by the IRS.

[Roland Slugg]

Some small employers don't even know what a statutory employee is.

Some CPAs don't, either.

What is it?

[Snaggletooth]

Stipend vs Accountable

Thanks for the responses. Sounds like I had best not take issue with the employer's W-2 whether they know better or not.

For the earlier question, $600 is a STIPEND. This means he gets a flat $600/month to cover his expenses, without the need of reporting on travel reports for reimbursements. This treatment means that $7200 must be added to his W-2, and it is taxable for FIT, FICA, Medicare - all. Also means the employer does not have an "accountable" plan. Employer is taking the easy way out and obviously prefers this to the clerical-intensive processing of expense reports.

Thanks to all - Sluggo if you really don't know, there are four such requirements you can find out quicker than I can spend the time. Just because someone uses their car in their job does not mean they are "statutory" employees as the term is used.

[kathyc2]

Thanks for the responses. Sounds like I had best not take issue with the employer's W-2 whether they know better or not.

For the earlier question, $600 is a STIPEND. This means he gets a flat $600/month to cover his expenses, without the need of reporting on travel reports for reimbursements. This treatment means that $7200 must be added to his W-2, and it is taxable for FIT, FICA, Medicare - all. Also means the employer does not have an "accountable" plan. Employer is taking the easy way out and obviously prefers this to the clerical-intensive processing of expense reports.

Thanks to all - Sluggo if you really don't know, there are four such requirements you can find out quicker than I can spend the time. Just because someone uses their car in their job does not mean they are "statutory" employees as the term is used.

Could likely be they don't know about accountable/non-accountable plans. I would print out some info on the difference along w/ a short letter for client to give to employer. Not only is employee paying more tax than necessary, the employer is paying more in matching FICA tax. You might even pick up a new business account with informing them!

[Lion]

Hybrid employee: IC for income/expenses but employee for FICA/Medicare. (A twist on Clergy.)

U.S. Master Tax Guide® (2017), 941B,Statutory Employees

Related Information – Federal

Statutory employees may deduct their allowable business expenses from gross income ( Code Sec. 3121(d); Rev. Rul. 90-93). 109 A statutory employee includes:

a full-time traveling or city salesperson who solicits orders from wholesalers, restaurants, or similar establishments on behalf of a principal where the merchandise sold is for resale (e.g., food sold to a restaurant) or for supplies used in the buyer's business;

a full-time life insurance agent whose principal business activity is selling life insurance and/or annuity contracts for one life insurance company;

an agent-driver or commission-driver engaged in distributing meat, vegetables, bakery goods, beverages (other than milk), or laundry or dry cleaning services; and

a home worker performing work on material or goods furnished by the employer.

An employer should indicate on the worker's Form W-2 whether the worker is classified as a statutory employee. Statutory employees report their wages, income, and allowable expenses on Schedule C or C-EZ of Form 1040. Statutory employees are not liable for self-employment tax because their employers must treat them as employees for FICA and FUTA purposes (except for full-time life insurance agents and home workers, who are not considered employees for FUTA purposes).

Footnotes
109 FED ¶8524.2547; INDIV: 63,154; PTE §5,305

[Burke]

And just because a taxpayer is employed in one of those occupations, does not mean he is a statutory employee for tax purposes. For years I worked for a major insurance company that had two branches of agents; in one branch they were treated as employees, in the other branch they were treated as statutory employees. Even though they performed the exact same duties. The difference was in their contract.

[Snaggletooth]

Some of them know better

Could likely be they don't know about accountable/non-accountable plans. I would print out some info on the difference along w/ a short letter for client to give to employer. Not only is employee paying more tax than necessary, the employer is paying more in matching FICA tax. You might even pick up a new business account with informing them!

Could be they don't know Kathy. I have a number of clients who are receiving these "stipends" but most of them do not qualify as statutory employees. I have brought the matter of an "accountable plan" to their attention on a few occasions and the truth is they don't want to pay enough in office help for someone to process expense reports, and the existing staff or the owner does want to get bogged down with all the paperwork.

Even had a case where there was in fact an accountable plan, and the owner's wife got tired of fooling with it, and they replaced the arrangement with a stipend. Even though they knew the stipend was fully taxable and they would have to incur payroll taxes on it.