Fundamental Payroll Certification (FPC) 2025 – 400 Free Practice Questions to Pass the Exam

For statutory employees, the correct understanding is that they are subject to specific tax treatments, which include Social Security, Medicare, and Federal Unemployment Tax Act (FUTA) taxes. Statutory employees are typically independent contractors who meet certain criteria established by the IRS and are treated as employees for tax purposes.

While their wages are exempt from federal income tax withholding, they are not exempt from Social Security or Medicare taxes, and FUTA taxes still apply to their wages. This means that wages earned by statutory employees, which might be exempt from federal income tax, nonetheless remain subject to these specific payroll taxes.

This clarity on the nature of statutory employee compensation highlights the unique position these employees hold in the tax system, differentiating their treatment from that of regular employees and independent contractors who do not meet the statutory definition. Thus, wages exempt from federal income tax but subject to other payroll taxes represent the correct categorization for statutory employees.