How to Enter a Statutory Employee in a Tax Return

Statutory Employees

Statutory employees are treated as being employees for purposes of social security and Medicare taxes while being treated as independent contractors for other taxes. They include certain full-time life insurance salespeople, agent or commission drivers, traveling salespeople, and homeworkers. Only the employer can determine that an employee is a statutory employee, and indicates a statutory employee by checking Box 13a of Form W-2.

NOTE: Statutory employees do not pay self-employment tax on their net earnings reported on Schedule C because they have already paid social security and Medicare taxes on their W-2. They are not exempt from social security and Medicare taxes.

The following steps to enter a statutory employee are provided below:

1. On the W-2 screen, Box 13, select the Statutory Employee check box (if this check box is selected on the paper copy of the W-2). 

2. Click Add Form on the tax return toolbar. In the Enter Schedule/Form Number box, enter C. When you see SCH C in the list, double click it, and the program adds the form to the return.

3. If the filing status is Married Filing Joint, double click New Taxpayer’s Occurrence for the taxpayer or New Spouse’s Occurrence for the spouse.

4. Check the box on line 1 Income reported to you on Form W-2 as “Statutory Employee” to carry the wages from the statutory W-2 to Schedule C.

5. Complete Schedule C.

NOTE: If the taxpayer has both statutory employee income to be reported on Schedule C as well as other income, they will need to report their income on two separate Schedule C’s to separate the statutory employee income.