What is a 1099 Nurse Practitioner? | NP as a 1099 Nurse
What is a 1099 nurse practitioner? If you are not self-employed and you don’t have your own practice, you are either working as an employee or an independent contractor. As an employee, you receive a W2 at the end of the year, you’re paid on a regular payroll, and taxes are taken out of that. As an independent contractor, you receive a 1099 at the end of the year. You will have no taxes taken out of it, and you will be responsible to withhold and or pay taxes either quarterly or at the end of the year. Why would someone be a 1099 versus an employee W2? Well, it kind of depends upon the setting. If you’re doing part-time work or maybe you’re asked to fill in occasionally or it’s completely up to you how much you work for a company, being an independent contractor might make more sense in that situation.
Independent Contractor 1099 Nurse Practitioner
You generally will not receive any benefits when you are a 1099, meaning, health, vision, dental, disability, retirement, life, licensing, malpractice, DEA registration, continuing education, privileging, credentialing, none of that is going to be paid for if you’re a 1099 independent contractor, you will be responsible to pay for all of those things for that specific employer and or company. Now, most nurse practitioners, if they’re working as an independent contractor, will create an LLC and then create their own EIN and bank account. And then you can use all of those as tax deductions for your compensation. Whereas if you’re an employee, they’re just going to pay for all of those things. And then you obviously won’t deduct any of that from your final compensation. Now, there will be some employers who will ask the NP to work as an independent contractor, where they’re doing all of the things that an employee would. Some employers, I’m not saying all of them, but some simply don’t want to have to pay employment tax. And so, they will ask the nurse practitioner to work as an independent contractor. If in that situation, you’re basically a quasi-employee, meaning, you’re essentially working as an employee but not getting any of the benefits when they classify you as an independent contractor.
So, if there is a scenario where they’re asking you to work in that situation, I would most likely decline and simply ask to sign an employment agreement and be an employee. What are some of the tax deductions you can take as a 1099 independent contractor? Well, the things that I mentioned, such as malpractice premiums, car travel, any kind of licenses, registrations, you can deduct any kind of business expenses associated with the practice supplies, home office, all of that kind of thing can be deducted and then run through your LLC. Whether you come out ahead, I mean, the biggest problem in working as a 1099 full-time, meaning, it’s your only job, is that you’re responsible to come up with all of those ancillary benefits. You have to find your own health, vision, and dental insurance, come up with a retirement plan, get a life insurance policy, do all the privileging and credentialing yourself most likely, and pay for all of the CE, that type of thing. Other pages of interest include:
- Is a W2 or 1099 Better for a Nurse Practitioner?
- Nurse Practitioner Independent Contractor Tax Deductions
And some people just simply don’t want to deal with that. And it would be a very small margin between how much you would make in one job or the other, but some people just want absolutely no responsibility to obtain all of those things. And so, working as an employee absolutely makes the most sense in that type of environment. The last thing, if you are working as an independent contractor, as I said before, you will not have taxes taken out of anything that you’re compensated with. You absolutely need to set aside an amount every pay period, or how often they’re paying you. So, at the end of the year, you’re not stuck with this enormous bill that you don’t have the money to pay for. I mean, I wish I could say it has never happened that I’ve spoken to, and this goes for any provider like NPs, PAs, physicians, dentists, and veterinarians.
There are just some who just don’t understand the differences between the two and they don’t set aside an amount. I would suggest talking to an accountant and making sure that you’re doing everything you can to maximize the tax deductions if you are working as a 1099. It’s well worth the money to sit down and get everything created correctly. The LLC, the bank accounts, the EIN, and an accountant can assist you with that. A tax attorney is just not necessary for something that kind of simple.
1099 vs W2 for Nurse Practitioners
Is it better to be a W2 or a 1099 as a nurse practitioner? First, if you are a W2, you are an employee and then you’ll have taxes withheld from your regularly scheduled payroll. And then at the end of the year, you’ll get a W2, just kind of summarizing all the taxes that were withheld. If you are a 1099, you are an independent contractor and then you’ll receive the 1099 at the end of the year, and no taxes will be withheld from your compensation at all. So, you will be responsible to pay those taxes either quarterly or annually, depending upon what you want to do. That’s the main distinction between the two.
Now, the benefits of being a W2 as an employee are, you’ll get all of the great ancillary benefits of being an employee. Most organizations, they’re going to offer you health, vision, dental, disability, life, and retirement. They’re going to pay for your continuing education, licensing board, board cert, any kind of privileging, credentialing, you’ll get paid time off, whereas as a 1099 independent contractor, you’re not going to get any of those things. You are going to be responsible for paying all of that, including malpractice insurance. And if you have a claims-made policy, tail insurance as well. Now, just because you’re working as an independent contractor 1099, it doesn’t mean you can’t deduct all those business expenses, but you need to set up your kind of corporate structure in the correct way. So, you should create an LLC, get an EIN, create a bank account, and then funnel all the compensation and expenses through that account so that you can keep track.
And then at the end of the year, you can deduct all those as business expenses. So, licensing, malpractice, health insurance, vehicle expenses, kind of all the things that would go into being a nurse practitioner for an organization, you can deduct if you’re an independent contractor. Now, which one is better? It just depends. I mean, theoretically, you should make more as an independent contractor because the employer is not paying for any of your benefits, any of your malpractice, they’re not paying employment tax. If you’re an employee, an employer has to pay employment tax, it’s usually somewhere between 10 to 12%. So, they’re probably saving around 15 to 20% by not giving you any of those benefits, not having to pay employment tax. At least some of that should pass through to the nurse practitioner, meaning, if you’re going to make the exact same amount as an employee versus an independent contractor, it probably makes sense to be the employee.
Now, many nurse practitioners simply don’t want to deal with the hassles of finding all of those things. They don’t want to find their malpractice. They don’t want to get health insurance, dental, vision, retirement, life, disability, all that kind of stuff set up. They don’t want to deal with it. And in that scenario, you have to find an employment opportunity. Now, the most likely opportunities you’ll have to be an independent contractor will be kind of short-term, part-time stuff. Or maybe you’re just going to work for a practice two weekends a month or something like that, just for half a Saturday. Well, in that scenario, it doesn’t really make sense for you to be an employee or for them to offer you all those benefits. And that would be kind of a normal role to be classified as an independent contractor.
Whereas if you’re working Monday through Friday, nine to five, and the employer is asking you to be an independent contractor, they’re likely misclassifying you. The IRS releases a 20-factor test that kind of goes through, alright, these are the things that can make you an employee. These are the things that can make you an independent contractor. If you’re concerned that you might be misclassified in some way, I would go through that test and then approach the employer with those concerns prior to signing an independent contractor agreement or an employment agreement after the fact, although it’s very rare. The IRS could come back, look at your employment relationship, and then state, oh, you’ve been misclassified. And then all of these back taxes will be owed usually by the employer. I have seen in some independent contractor agreements that the employer basically states if it’s found that you were misclassified and the employer has to either pay a penalty or fight it in court or whatever that the nurse practitioner will be responsible for those things, in addition to attorney’s fees.
That’s an unconscionable clause. I would never sign that. So, just be careful about that when looking at an independent contractor agreement or an employment agreement as well. Anyway, that’s kind of the difference between the two and maybe why one might work for you over the other. I mean, most of the time, an NP is going to be an employee. It’s very rare, unless, as I said before, it’s kind of like a part-time position that it would make sense to be an independent contractor. I would suggest talking to an accountant before doing any of this. I’m not a tax attorney. So, I’m just kind of giving you my side on the employment and contract side. But meeting with an accountant who can kind of set up these things for you and give you the best advice on maximizing your tax deductions makes the most sense. Hopefully, that’s helpful.
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