The ability to choose how work is classified by a professional can be highly beneficial for a number of positions and industries. Though many hiring managers and recruiters are accustomed to working with W-2 employees, this option isn’t always the best when it comes to healthcare.
Physicians and other high-income professionals have been discovering the benefits of working as 1099 independent contractors instead of W-2 employees. It’s important both sides – employer and employee – know the pros and cons of each. If you handle securing new talent at your medical facility, read on to learn about why working with independent physicians might be a change worth considering.
This guide will cover the key differences between W-2 and 1099 work, the pros and cons of each, and the unique benefits that 1099 arrangements present in the medical field.
What is a W-2 Employee?
A W-2 employee refers to a worker who is listed on a company’s payroll and either earns an hourly wage or a yearly salary. This type of worker is officially an employee of the company they work for, and as such, they’re often entitled to certain benefits. For example, vacation pay, personal time off, health insurance, and retirement benefits are commonly included in a W-2 employee’s work agreement.
Additionally, when a business hires a W-2 employee, the business is responsible for handling the employee’s tax withholdings for the IRS, as well as any insurance coverage required by the state in which the company operates.
This type of work can be full-time or part-time, and with W-2 employment, the employee reports to a manager to log his or her work hours for the week.
Examples of W-2 Employees
Many of the traditional positions that come to mind when we think about work fall into the W-2 category. Though some workplaces vary in terms of the type of worker they hire, you can expect to find W-2 employees filling the following positions:
- Teachers in public schools
- Restaurant staff and baristas
- Retail employees
- Hospitality staff
The W-2 Form
A W-2 form is a legal document used for income verification and tax purposes. It includes information about the W-2 income an employee has earned while working for an employer during a specific year.
The information found on a W-2 form includes the employee’s name, income, the amount of taxes withheld from the year’s wages, employer benefits provided, the number of dependents the employee has, the employee’s social security number, the employee’s address, and the employer’s information (including the EIN number the business uses to file taxes).
Pros & Cons of W-2 Employment
W-2 employment has its benefits and drawbacks, especially when this work type is applied to specific industries. If a physician is hired as an employee at a medical facility, he or she can expect certain positives and negatives that result from this work type. Additionally, the facility itself may or may not find the W-2 arrangement beneficial for a number of reasons.
Let’s examine the pros and cons of W-2 employment in healthcare, both from the perspective of the employee and employer.
Medical facilities need to weigh the conveniences against the struggles associated with having full-time or part-time employees. These factors are listed below.
- More control over an employee’s schedule
- Workplace consistency
- Potentially low turnover rate
- Hiring an employee is more costly than hiring a contractor
- More legal requirements
- Training responsibility
When it comes to the need for weighing one’s options, employers aren’t alone. Physicians should consider whether W-2 employment fits their unique work styles and allows them to make the most of their professional skills. The following points are worth considering.
- Employment benefits
- Vacation/Sick pay
- More legal protections
- Less task-related risk
- Less schedule freedom
- More stringent task management
- Employers may have more say in an employee’s “competitive” work
What is a 1099 Independent Contractor?
An independent contractor who qualifies as a 1099 worker is technically self-employed. This type of professional performs work as his or her own entity rather than working as an employee under a company’s control. An independent contractor works with other companies rather than working for them, and instead of being paid an hourly wage or a yearly salary, these workers are usually paid based on the type of work performed and the time spent on the tasks they agree to perform.
Unlike W-2 employees, a 1099 independent contractor is responsible for his or her own taxes, retirement savings, and health insurance coverage. Employers are not required to pay the same sort of taxes for a 1099 worker as they’d need to pay after hiring an employee.
Examples of 1099 Independent Contractors
Because independent contractors are self-employed, you can expect to find these individuals in skilled and semi-skilled professions. For example:
- Temporary Workers: Independent sales agents, carnival staff, rideshare drivers, personal shoppers
- Freelancers: Wedding photographers, event bands, entertainers
- Contractors: Professional writers, editors, traveling nurses, hospice workers, skilled laborers
- Consultants: Individuals who provide expert advice on a topic, such as acting, music, event planning, etc.
- Specialists: Physicians, veterinarians, independent instructors
The 1099 Form
An independent contractor uses Form 1099 to file his or her taxes. This form includes information that’s similar to what’s listed on a W-2, but there are a few key differences. Additionally, there are a couple of 1099 variations, including the 1099-MISC and the 1099 G form.
The 1099-NEC is used to report non-employment compensation and includes information like the contractor’s business title, his or her name, address, tax ID number, state and federal tax withholdings (if any), and the individual’s earnings.
The 1099-MISC form is used to record income that isn’t subject to self-employment taxes. So if, for example, the independent contractor works as a landlord, rent payments would be recorded on this form rather than the 1099-NEC form. Most independent physicians would fill out a 1099-NEC form to report their earnings.
Pros & Cons of 1099 Work
As with any work type, there are positive and negative factors to consider when working either as an independent contractor or with an independent contractor. Self-employment presents working professionals with a myriad of opportunities, but there are also concerns to get ahead of to remain compliant with state and federal requirements.
Let’s go over a few of the pros and cons of 1099 work.
Plenty of employers are starting to see the benefits that come from working with self-employed 1099 physicians and other medical professionals. The most notable are listed below.
- No employment taxes
- Ability to work with trained specialists
- More affordable than W-2 workers
- No requirement to pay benefits
- Less control over work schedules and task management
- Contractor may not have as much loyalty to your organization
Self-employed professionals tend to find this work type far more beneficial than working as a W-2 employee for a number of reasons. However, it’s crucial for independent contractors to be aware of potential setbacks so that they can avoid running into problems around tax season.
- Schedule and workplace freedom
- Setting one’s own rates
- Greater work-life balance
- No required ties to one area
- Contractors are responsible for their own taxes, health insurance, medical malpractice insurance, and retirement
- Weaker workplace relationships
- Greater task risks for inexperienced contractors
Most experienced independent contractors are aware of their tax obligations and as such, they’re able to mitigate any risks they may have run into as a newly self-employed professional. Self-employed physicians who pay close attention to state and federal laws, take care of their own health insurance coverage, pay their taxes on time and in full, and manage their income in ways that allow them to save for retirement tend to perform quite effectively as independent contractors.
Locum Tenens & 1099s in Healthcare
Locum tenens is a term that refers to a practice that allows professionals to fill in where their services are needed. Whether the established professional in the business is injured, dealing with an illness, or needs extended time away from work, the business might request another qualified professional from another area to fill the position temporarily. Additionally, in remote areas where a dedicated professional isn’t available, locum tenens enables the provision of services by sending providers where they need to be.
In healthcare, locum tenens allows physicians and nurses to travel to areas where their services are most needed. In these situations, they work temporarily before relocating to the next site they’re called to. Assignments can take several days, a few weeks, or a couple of months to complete.
Most of the time, medical professionals who fill these roles are independent contractors, which is what allows them to maintain such a flexible schedule. This option is usually a beneficial one for facilities that temporarily experience significant needs for medical services, as it can minimize the struggles faced when trying to recruit full-time employees in remote or at-risk locations.
1099 Advantages in Healthcare
For medical facilities and physicians alike, there are advantages that come with developing professional relationships with independent contractors. For one, an independent physician owns his or her business and as such, these medical professionals are responsible for their own reputations. An independent physician has his or her name to protect so these individuals typically take special care to ensure their performance reflects positively on them. Self-employed doctors take their reputations with them wherever they go.
For example, Dr. X is an independent physician who has full control over his or her reputation, and because of this, he or she conducts business in a highly professional manner.
W-2 physicians, on the other hand, have some level of protection from the companies they’re employed under. If a physician who is employed at a specific facility (let’s use Dr. X again) performs lackluster work, the facility itself takes on some of the negativity associated with the individual. Instead of Dr. X being solely responsible for his or her actions in the field, Medical Company Y, which employees Dr. X will assume some of the responsibility, positive or negative, for Dr. X’s performance.
Keep in mind as well that, as mentioned above, independent physicians are responsible for their own medical malpractice insurance coverage. This requirement places additional responsibility on the physician for maintaining a high standard of practice and lessens the burdens placed on the facility if an issue arises in the future.
When it comes to contracting with an independent physician, medical facilities can take advantage of time-saving opportunities as well. Many, if not most, independent physicians are fully trained and highly skilled by the time they offer their services as medical providers. This means that medical facilities, in addition to saving money they’d otherwise spend on employment expenses, can also save time during the onboarding and training process.
Tax Deductions for 1099 Physicians
For W-2 physicians who are considering 1099 employment, there is a vast number of tax deductions that become available to these professionals.
In addition to working a schedule that meets their needs, traveling to different locations as they please, and balancing their time at work with their time at home, physicians who work as independent contractors may be able to claim the following deductions when filing taxes.
- Car mileage
- Qualified business income (QBID)
- Food expenses
- HSA and IRA contributions
- Student loan payment deductions
- Lodging during travel
Furthermore, if a significant portion of an independent physician’s work takes place in his or her home office, home office tax deductions might be worth looking into.
Whether you’re a facility representative or a physician, this article should have highlighted the array of opportunities that come with 1099 arrangements. If you’d like to learn more about how to effectively contract with independent physicians at your facility, we can help. The same is true if you’re a W-2 physician who wants to pursue 1099 work. Reach out to Physician Tax Solutions to book a consultation. Our tax professionals specialize in presenting employment and tax solutions that enable healthcare professionals to make the most of their income.