Is a W2 or 1099 Better for a Physician Assistant? | PA W2 Employee
Is a W2 or 1099 better for a physician assistant? If you’re working as an employee for a private practice or a hospital, you’re going to be classified as a W2 employee, meaning, you’ll receive a W2 at the end of the year, and then taxes will be withheld from whatever your regularly paid compensation is. If you’re working as an independent contractor, you’re going to receive a 1099 at the end of the year, and no taxes are going to be withheld from any compensation you receive from whatever organization you’re working for. The main difference between the two of them is in 1099, no taxes are withheld. W2 taxes are. Additionally, if you’re working as an employee, you’re going to receive all the good benefits that a normal employee would.
PA W2 vs 1009 Benefits
Most likely health, vision, dental, retirement, life, disability, they’re going to pay for your board license, DEA registration, and continuing education, you’re going to get paid time off. All of that, in a normal employment relationship, would be covered by the employer. If you’re working as a 1099, you’re going to be responsible for all of that including malpractice insurance. Now, if you want to maximize your tax deductions, then what you should do is create an LLC, get an EIN, get a bank account in the state that you’re working in, and then put all compensation and expenses, have it flow through that bank account. That way, you can track whatever your expenses and revenues are. And then use that as tax deductions at the end of the year as business expenses.
Working as an Independent Contractor
I would suggest if you’re going to work as an independent contractor, you should talk to an accountant in advance of starting or signing the agreement and then set up all those things properly, so you can maximize your tax deductions. If you do set up an LLC, you don’t have to do it for every single job that you take as an independent contractor. It’s good to go from when you start until however long you want to work as an independent contractor. For multiple different organizations, what they would do is in the independent contractor agreement, it’ll state who the parties are, just use the contract they’re contracting with your LLC and not you personally. Other topics of interest include:
And that way, the relationship is set up correctly. Now, as I said before, the situation really dictates which one is better. There are times when an employer will ask you to work as an independent contractor, but they’re really treating you as an employee completely. The reason why most of them would do that is just to save on paying employment taxes, which is usually around 10 to 12% of your total compensation. The IRS lists kind of like a 20-factor test to determine whether someone is an independent contractor versus an employee. I would suggest if you’re concerned that you’re being misclassified, that you look at that test, and then if it’s clear you’re actually an employee, but they’re just classifying using an independent contractor, so they don’t have to pay employment taxes or give you any benefits, bring that to the attention of the employer and say, look, I believe you’re misclassifying me.
Review Your Contract Carefully
I’m not comfortable signing this. I mean, what could happen is if the IRS determines that you were misclassified, they could come back to the employer for employment taxes. Sometimes employers will even put language in there stating that the independent contractor would be responsible if the IRS comes back and says they’re misclassified for those back taxes and penalties. Absolutely do not sign something that says that. So, that’s kind of the different scenarios where it might make sense to be a W2 versus a 1099. It just depends upon the situation. I mean, most people, if they’re just working sporadically, maybe once or twice a month for a surgeon or something they’re assisting in like if you’re orthopedics or something like that, that makes sense to be an independent contractor. If you’re working every single day from nine to five, you are not an independent contractor. It’s very, very unlikely that a scenario like that would dictate you to be classified as an independent contractor. So, you just need to be careful.
Tax Implications of an Independent Contractor Physician Assistant
What are the tax deductions a physician assistant can take if they are classified as an independent contractor? First, if a PA is working as an employee, they’ll receive a W2 at the end of the year, and taxes will be withheld from their compensation throughout the year. Whereas if they are an independent contractor, they’ll receive a 1099 at the end of the year, and no taxes are withheld during the year anytime they’re compensated. So, the PA will be responsible to pay those taxes either quarterly or at the end of the year when they file their tax returns. In what situation does it make sense to be an independent contractor? Well, for the most part, if you are working either part-time or maybe the schedule is completely up to you, especially if PAs are assisting in surgical procedures, sometimes they’ll be classified as an independent contractor. In that scenario, it might make sense.
Benefits Between an Employee vs. Independent Contractor
When you’re an employee, you get all the great ancillary benefits of employment. You’ll get health, vision, dental, life, retirement, and disability. They’re going to pay for your licensing board and DEA registration. You’ll usually get an amount for continuing education. You’ll get paid time off. You won’t get any of that as an independent contractor, you will be responsible to pay for all of those things including malpractice insurance. Now, if you are a PA who’s working as an independent contractor, you can do some things that will make all of those expenses tax-deductible. And the best way of doing that is to create an LLC and then get an EIN from the federal government, the IRS, and then you would open a bank account under that LLC in whatever state you’re in. And then you would just run all of the compensation and expenses through that account to be able to track it appropriately.
I would suggest contacting an accountant to kind of go over the best way of setting up the LLC, then how to make certain that you’re maximizing the deductions that you can take. I would not just accept an independent contractor job, sign the independent contractor agreement, and just start and not even think about all of the kind of implications of not having any taxes or benefits provided to you during the relationship. Now, there may be a situation where you are working almost as an employee, but the employer will want to classify you as an independent contractor. Now, the reason why most of them do that is to get out of paying employment tax. Usually, that’s around 10 to 12% of your total comp.
So, if you think of it this way, if you’re working as an independent contractor and they’re not paying any employment tax on you, and they’re also not providing you any benefits, which can be costly, you should probably get a bump in normal compensation versus an employed PA. What’s a fair percentage? Probably 5% to 15% of whatever you’re probably being paid hourly if you’re an independent contractor. So, your hourly rate should be bumped by a little bit because the employer is saving a significant amount of money by not having to pay employment tax or provide you with any benefits at all.
What is Fair Rate?
Now, what is a fair rate? Well, you’re going to have to ask your colleagues and it also is dependent upon where you are in the country. Certainly, rates change based upon where you’re located. But you should look to negotiate a little higher rate if it’s the exact same as somebody who’s working as an employed PA. The best way of approaching an employer who is forcing you to be an independent contractor is just stating, look, the IRS offers a 20-factor test that provides an analysis of whether someone is actually an employee or an independent contractor.
If you think you’re being misclassified, I would go through that list and even present that to the employer and just say, look, you’re treating me as an employee, but paying me as an independent contractor. I would like to be classified properly. Many people don’t want to go through the hassles. Like, let’s just say, you’re working full-time as an independent contractor. You’re going to be responsible for getting all those benefits such as health, vision, dental, disability, life, and setting up retirement. That is a daunting cast for some people and one that some people have absolutely no interest in doing.
In that scenario, you may not want to act as an independent contractor, or if you do have an employment situation where you’re working as a full-time employee, and you’re just supplementing part-time staff as an independent
contractor, then that’s fine. But if you’re working full-time as an independent contractor, you must think about all of the things that you’re going to have to do yourself: get your license, and the DEA, and pay for your CE. As I said, get privileged, credentialed, all that good stuff. A lot of complications to think about in that scenario.
Non Compete vs Non Solicit
What is the difference between a non-solicitation clause and a non-compete in a PA employment agreement? In any employment agreement that a physician assistant signs, there’s going to be a section that contains what’s called restrictive covenants, and a restrictive covenant essentially prohibits the PA from doing something either during or after the contract is terminated. Normal restrictive covenants would include a non-disparagement clause, non-solicitation clause and a non-compete.
Non-Solicitation Clause
Let’s talk about the non-solicitation clause first. A non-solicitation clause will stop the physician assistant from soliciting, usually, patients, employees, other PAs, or physicians once they leave the employer for a set period. Most non-solicitation clauses are somewhere between one to two years. And some things to think about in a non-solicitation clause would be what the definition of solicitation is.
Most of these clauses will not define necessarily what is considered a solicitation. In my mind, soliciting would be making active steps or taking actions that would initiate contact with patients, employees, or other providers. An example of that would be, let’s say you’re in primary care, you download a patient list of everyone you’ve provided care to, and then either immediately after, or even in your last few weeks to the employer, you blast out an email to all your patients saying, I’m leaving this practice, starting a new practice. Please come with me. That would be prohibited by a non-solicitation clause. Another example would be, let’s say there’s an MA, an RN, or front office staff that you really like and vibe with, and you’re starting at a new practice, and you want that person to come with you.
Maybe you send them a text that just says, hey, as you know, I’m leaving, I’d love for you to come work for me or my new employer once I leave the practice. A non-solicitation clause would prohibit that type of activity. So, text messages, voicemails, and direct messages through social media, these are all provable things that if you’re going to solicit someone, if there was some litigation, they could get access to, it would be clear that you were soliciting people. Now, as far as patients go, you can’t dictate who someone’s healthcare provider is. If you leave the practice and you have a patient reach out to you and say, hey, I hear you’re leaving. I’d love for you to continue to be my provider. You can give them the information of, alright here because you didn’t initiate or make any solicitation efforts.
Consultation with Chelle Law
When your PA agreement is reviewed by a contract review attorney, you will find financial benefits which end up outweighing the cost of the review. Leave it to the experts. If you are in need of assistance with an employment agreement or contract review schedule a Physician Assistant Contract Lawyer with Chelle Law today!
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