Certain statutory employees are required to use IRS Schedule C to report income and expenses related to their statutory employee work. This treatment applies even though statutory employees may receive a Form W-2, because their income is classified differently under federal tax rules.
What a Statutory Employee Is
A statutory employee is a worker who is treated as an employee for specific employment tax purposes but is allowed to report certain income and expenses as business activity. This classification applies only in defined situations set by federal tax law and is typically identified by a specific designation on Form W-2.
Why Statutory Employees Use Schedule C
Statutory employees use Schedule C to report income and related expenses connected to their statutory employee services. The form provides a structured way to calculate the net profit or loss from this activity, which is then included in the individual income tax return.
Reporting Income and Expenses
Income reported by statutory employees on Schedule C generally reflects compensation received for services, while related expenses are reported using the same expense categories available to other Schedule C filers. How business expenses are defined and grouped is explained in Business Expenses in Schedule C.
How Schedule C Fits Into Form 1040
When used by a statutory employee, Schedule C is completed and filed with Form 1040. The resulting profit or loss flows into the individual return and may interact with other schedules. The filing relationship is described in How Schedule C Relates to Form 1040.
How Statutory Employee Reporting Differs
Although statutory employees receive a Form W-2, their Schedule C reporting differs from wage reporting. The Schedule C portion reflects business-style reporting rather than wage income reporting. A broader explanation of who uses Schedule C is provided in Who Needs to File IRS Schedule C.
Related Topics and Official Reference
Guidance on completing Schedule C is available in How to Complete IRS Schedule C. A complete overview of Schedule C is available in IRS Schedule C Overview, and the official form and instructions issued by the Internal Revenue Service are available in the reference entry at IRS Form 1040 Schedule C.