Physician Assistant Independent Contractor Tax Deductions
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.
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. Other blogs of interest include:
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.
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.
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