Independent contractor

[IntegrativePA]

Does anyone have experience with being an independent contractor? I have an offer that seems very lucrative but I am wondering what the potential down sides are and also the impact on taxes and possible legal issues. Has anyone had any issues with getting audited as an independent contractor? Did you set up a LLC? Any advice/tips? I am working part time already so I am not concerned about losing benefits. Thanks in advance!!!

[RobinHood]

1099 is the way to go with the new tax reforms. Call your accountant and ask how much you should be putting away for taxes based off your rate. You will clear 100% of your check depending on the state. Try to work in states with no income tax! Write off everything you can, + you can.  Contribute to a SEP IRA, (much higher level) than a qualified retirement plan.  Don't take anything less than 90/hr if doing EM/express care locum. ALWAYS request to talk to a PA on site before you take an assignment. Never talk to anyone in management working there, always talk to the norma staffing to get the scoop (work conditions, supportive staff, true annual volume etc...). 

[EMEDPA]

My full time job is 1099. I would go back to W2 in a heartbeat if given the option. I am currently in about a 52% tax bracket as follows:

25% federal business tax

10% state tax

15% social security( 7.5% x 2- you pay both as 1099 , only 1 as W2)

1.6% foreign business tax. I do not live in the state in which I work.

I have never made so much money, but I am taking home much less than before. Yes, I have an accountant.

I have 3 other part time/per diem W2 jobs to pay the taxes on my 1099 income....

[Boatswain2PA]

On 1/23/2019 at 9:10 PM, IntegrativePA said:

Did you set up a LLC?

I see no benefit of setting up an LLC unless you are going to be making enough to pay you AND your spouse as employees, therefore allowing spouse to "work from home" while earning an income which can go straight to retirement.  Some physicians make enough to do that, I don't know of any PAs who do.  

There is absolutely ZERO malpractice protection in  having an LLC versus working as a DBA (Doing Business As) and paid via 1099.

 

On 2/7/2019 at 8:20 PM, RobinHood said:

1099 is the way to go with the new tax reforms.

The Trump tax changes should be very, very good to 1099 ICs with a 20% deduction on Qualified Business Income up to certain limits,etc.  However it's only the first year of this, and my accountant says the IRS rules on this are still fuzzy.  Haven't gotten my taxes back from him yet, so don't know if I will be able to take that (I think I should be able to, but....)

 

On 2/7/2019 at 8:20 PM, RobinHood said:

You will clear 100% of your check depending on the state.

i'm not sure what you mean by this.  Just to clarify, a 1099 IC MUST withhold federal and state taxes from the check that they receive.  You should generally figure spending 1/3 of your income (after expenses) to the guvment so they can redistribute it at their whim.

I did a monthly expense report, stapled all my receipt to it, and subtracted the total from what I made that month, then put 1/3 of what was left into a separate savings account.  Then once a quarter sent that money to the guvment.

 

On 2/7/2019 at 8:20 PM, RobinHood said:

Contribute to a SEP IRA, (much higher level) than a qualified retirement plan. 

SEP-IRAs are good (can put $55K/year into it pre-tax), but you can't do a backdoor ROTH from a SEP-IRA.  No big deal if you make less than $193K/year MAGI, but if you go over that then you start limiting what you can directly contribute to a ROTH.

 

On 2/7/2019 at 11:16 PM, EMEDPA said:

My full time job is 1099. I would go back to W2 in a heartbeat if given the option. I am currently in about a 52% tax bracket as follows:

25% federal business tax

10% state tax

15% social security( 7.5% x 2- you pay both as 1099 , only 1 as W2)

1.6% foreign business tax. I do not live in the state in which I work.

I have never made so much money, but I am taking home much less than before. Yes, I have an accountant

I understand the feeling, but you should also be able to make some good deductions.  $.545/mile for travel is a nice little deduction.  Writing off your cell phone bill, new computer, CME vacations, etc....all pre-tax.

If your job was W-2, you wouldn't get those deductions, PLUS you would still pay the 25% fed, the 10% state (WOW!!), the 1.6% foreign business tax, and 7.5% of the social security....only saving you 7.5% in taxes.
 

[EMEDPA]

10 hours ago, Boatswain2PA said:

If your job was W-2, you wouldn't get those deductions, PLUS you would still pay the 25% fed, the 10% state (WOW!!), the 1.6% foreign business tax, and 7.5% of the social security....only saving you 7.5% in taxes.
 

but I would not have to fund my cme, health care, retirement, disability, life insurance, PTO,  etc. I would not even need an accountant. I never had one until last year.

remember a deduction saves you the value of the taxes on that money, not the money itself. a $100 deduction is actually worth about $28. I would not have the business tax if I was w2, my boss would.

[Boatswain2PA]

14 minutes ago, EMEDPA said:

but I would not have to fund my cme, health care, retirement, disability, life insurance, PTO,  etc. I would not even need an accountant. I never had one until last year.

remember a deduction saves you the value of the taxes on that money, not the money itself. a $100 deduction is actually worth about $28. I would not have the business tax if I was w2, my boss would.

Absolutely, which is why ICs need to make about 20-30% more per hour than W2.

But there are deductions for stuff you would do ANYWAY.  It's nice to bring the wife to vacations...err I mean CME conferences while you save 30% on the cost of the room, etc.

[EMEDPA]

when I went from w2 to 1099 I got an extra $9/hr. nowhere close to 20%. And I am paid more than any other PA at all 3 of my jobs.

[ajlllll]

I am currently working as a 1099 locum.  It is my first locus assignment in years.  I am making $80 per hour working express care with over 15 years of experience. The company I work for pays for travel, housing, gas, car, etc.   which seems like a great deal until I realized that I have no write offs.  Basically I just pay for food which is very expensive considering my remote location.  What tax deductions do I have?  I have set up a SEP-IRA.

 

I also have a part-time W-2 job which pays $70 per hour with no benefits.  I am thinking that this is the better option.  Thoughts/ advise?

 

I like the idea of locums because I like the flexibility of schedule.  However, I am noticing that locums can be abused and that we are definitely being recruited to places where retention is difficult for obvious reasons.  I agree you need to have thick skin and be ready to hit the floor running.  If I do this again, I will definitely request to talk to someone actually working the job before taking a contract and will require at least a day of orientation, etc. Any advise from seasoned locums? 

 

Thanks in advance for any info

[bovineplane]

PTO. Any retirement match. Disability insurance. Unemployment. Additions for cme reimbursement of time off. Health insurance. 

1099 has a place and can be lucrative but it has to be sufficient to make the risk worth it. 

Example. Retired military or military spouse with Tricare would have little need for health insurance from an employer. That is a huge cost on the employer benefits. At the same time many employees won't pay a w2 employee more just because they don't need/want the insurance they offer. Here a 1099 situation may be beneficial. 

If you are the primary bread winner and have a family, the employer disability, health, dental etc insurances are a nice benefit. Having paid vacation or sick leave. Contributions to retirement are a plus. 

If you have a typical w2 employer who offers 2-4% company match 401k them covers 7.5% employer tax to the feds you are 9.5-11.5% higher than your base salary before you get to the various insurances offered. What is a typical family health insurance plan cost/worth? This varies so I won't speculate. 

Someone above noted you should make 20-30% more than w2. Based on the 9.5-11.5% above leaves you 10-20% of your salary to cover health, PTO, cme, etc. Unless your salary is much above average for PAs I don't think you can cover it for that. 

[ventana]

from medscape 

 

https://www.medscape.com/viewarticle/913093?nlid=129931_381&src=WNL_mdplsnews_190524_mscpedit_wir&uac=89496AJ&spon=17&impID=1974030&faf=1

Question

Can I Use an Independent Contractor?

A physician wrote, "I want a nurse practitioner or physician to cover one 8-hour slot per week in my urgent care office. I want this person to be an independent contractor. Am I on solid ground legally?"

Response from Carolyn Buppert, MSN, JD  Healthcare attorney

 

Probably not. The IRS, when determining whether an arrangement is one of employer/employee or independent contracting, looks at the degree of control that you (the boss) have and the independence that the hired individual has. The general question to answer is: Who controls the work? If you are telling the independent contractor when to work and where to work, that leans toward employment. An independent contractor generally works when he/she wants, where he/she wants, completes a specific project, and serves other clients. An independent contractor usually is paid a flat fee for a project and has the possibility of incurring a profit or a loss on a project.

The consequences of an erroneous choice could mean that the IRS and/or state taxing authorities could require you to pay taxes and fines. If the IRS or a state taxation office does an audit and finds that you are calling someone an independent contractor when that person, by the agency's definition, is an employee, the agency may assess civil penalties against you. They may require you personally to pay the employee's share of payroll taxes. They may assess fraud penalties. Criminal charges may even be filed. "Everyone does this" is not going to be a good defense.

For a detailed discussion of the differences between independent contractor and employee, see the IRS resource, Independent Contractor (Self-Employed) or Employee?

It's important to understand that tax liability and penalties for misclassifying an independent contractor fall on the employer. The clinician in this scenario isn't expected to recognize the appropriate classification, but you, the hiring individual, are.