Publication 963 (Rev. October 1997) - Uncle Fed's Tax*Board

Determining Worker Status
NOTES
Workers in these occupations are employees for FICA tax purposes. By definition, a
worker can not be a statutory employee under IRC section 3121(d)(3) if that worker is a
common law employee. See Lickiss v. Commissioner, T.C. Memo 1994-103.
In order for IRC section 3121(d)(3) to apply when a worker performs services for
remuneration for a service recipient, there are three general requirements:
1. The contract of service contemplates that the worker will personally perform substantially
all the work.
2. The worker has no substantial investment in facilities other than transportation facilities
used in performing the work.
3. There is a continuing work relationship with the business for which the services are
performed.
You generally do not need to be concerned with the statutory employee categories. There
is one exception: Home workers may be hired by government entities.
Home Workers
Traditionally, this group would have included, but was not limited to, workers who would
make such things as clothing, bedding, needlecraft products, or similar products. In addition,
it can include workers who provide typing or transcribing services. The work is done away
from the government entity’s workplace, usually in the worker’s own home, the home of
another, or a home workshop.
To qualify as a statutory employee, the home worker must meet, in addition to the three
general requirements previously mentioned, the following:
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♦
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the work must be done in accordance with the specifications given by the government
entity (generally simple and consisting of such things as patterns or samples);
the material or goods on which the work is done must be furnished by the government
entity;
the finished product must be returned to the government entity or to another designation.
It is immaterial whether the government entity picks up the work or the worker
delivers it.
$100 Rule For Home Workers
IRC section 3121(a)(10) provides that the pay which the home worker receives for such work
is not subject to FICA tax unless $100 or more of cash is received during any calendar year.
Statutory Employees’ Expenses
A worker can only be a statutory employee if he or she is an independent contractor under
the common law. Thus, statutory employees under IRC section 3121(d)(3) are not employees
for the purpose of deducting trade or business expenses and may deduct their expenses
on Schedule C rather than on Schedule A as miscellaneous itemized deductions. Revenue
Ruling 90-93, 1990-2 C.B. 33.
Statutory employees receive a Form W-2. A check is made in Box 15 to indicate that the
worker is a statutory employee. Federal income tax withholding does not apply to statutory
employees.
3-18 Federal-State Reference Guide (1997 Edition)