I have searched the IRS website and many others however I cannot find a statement specifically on point that either allows or denies the deduction of a SEP-IRA for a Statutory Employee.

Here’s the detail – my client works as a broker for products and received commissions as his earnings. He is not in insurance where you more often see a statutory employee. He works for a larger company that has determined that all the brokers that work for them qualify as statutory employees. As such the income is reported on a W-2 with the box checked for “statutory employee” and the resulting gross wages appear on Schedule C of the clients tax return.

His company has no other retirement plan and a SEP-IRA would allow for a much larger contribution over a traditional IRA.

On http://www.theslottreport.com – from The Slott Report Mailbag of Jan 26, 2012 question #2 addresses this but for a statutory employee but with a 401(k) plan and additional commission income. The answer to that inquiry is that you have to determine that the client is self-employed or not. Only a truly self-employed individual can establish a SEP-IRA.

OK but it would appear that the statutory employee is really a type of hybrid that is an independent contractor but has some of the same withholding as an employee.

The IRS defines the Statutory employee as: [b]If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute (statutory employees) for certain employment tax purposes if they fall within any one of the following four categories and meet the three conditions described under Social Security and Medicare taxes, below.[/b]

I have determined that my client meets #1 of the four categories and also meets all the 3 conditions for SS & Medicare taxes.

The most direct and on point item I found was: In the Internal Revenue Manual 4.23.5.6.4.1 (02-01-2003) – Statutory Employee—Employee Benefits

“Except for full-time life insurance salespersons, statutory employees remain independent contractors for employee benefit purposes. Thus, they are not eligible to participate in the employee benefit plans sponsored by the taxpayer for employees and cannot enjoy the exclusions from income for amounts paid under accident and health insurance arrangements under IRC 104, IRC 105, and IRC 106 to the extent that those income tax exclusions apply only to employees. [b]However, statutory employees can establish and maintain their own self-employed retirement plans.[/b]”

Does anyone have other findings that might be more direct on point?

Thanks in advance for your input.

TFolkers
[email protected]