The IRS Schedule C (Form 1040), which is titled Profit or Loss from Business is mainly used by self-employed individuals (sole proprietors/independent contractors). The Schedule C form is used to report profit or loss from a business operated by a sole proprietor. Any activity qualifies as a business if the primary purpose for engaging in the activity is to generate income or a profit and the activity is engaged in with continuity and regularity. The Schedule C form can also be used by Statutory Employees. By statute, for certain employment tax purposes, some independent contractors can be classified as employees if they fall within four categories and meet certain conditions relating to social security and Medicare taxes. The four categories are as follows:

1. A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission.
2. A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company
3. An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
4. A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed must be the salesperson’s principal business activity.

For the typical self-employed individual (generally sole proprietors/independent contractors), social security and Medicare taxes are not withheld. These taxes are paid by the independent contractor in the form of self-employment taxes. For statutory employees, this is not the case.

If the following conditions apply, an employer should withhold social security and Medicare taxes from the wages of the statutory employee. The service contract states or implies that substantially all the services are to be performed personally by them. They do not have a substantial investment in the equipment and property used to perform the services (other than an investment in transportation facilities). The services are performed on a continuing basis for the same payer. If paid more than $600 during the year by the same payer, Schedule C filers generally will receive the Form 1099-MISC unless they are classified as statutory employed and statutory employees receive the Form W2.