What is a 1099 Physician Assistant? | PA Independent Contractor
What is a 1099 physician assistant? If you are an employee for private practice or hospital, you’ll receive a W2 at the end of the year, and then you’ll have taxes withheld from the compensation that you receive from that employer. Whereas if you are working as an independent contractor, you’ll receive a 1099 at the end of the year, and no taxes will be withheld at all from your compensation. You will be responsible for paying for those taxes either on a quarterly or annual basis, depending upon how you want to do it. If you’re thinking of becoming an independent contractor, maybe you’re going to work part-time, maybe you’re in orthopedics or surgery or something like that, and physicians ask you to assist maybe one or two times a month, they’re not going to classify you as an employee. More than likely you’ll be an independent contractor.
Just because they’re not going to provide all the benefits. I mean, the biggest difference between working as a W2 versus 1099 is the benefits offered when you’re an employee. As an employee, you’re going to get health, vision, dental, disability, life, retirement, and paid time off. They’re going to pay for your continuing education, your license, and DEA registration. All the things that are needed to practice safely and effectively as an employee, they’re going to pay for all of that. When you work as an independent contractor in a 1099, you’re going to be responsible for all those things. Now, this doesn’t mean that you can’t deduct most of those expenses, but you need to set it up properly.
Should a 1099 Employee Create an LLC
Forming an LLC can be a strategic decision for 1099 independent contractors seeking to enhance their liability protection, gain tax advantages, and improve their professional image. By establishing an LLC, contractors can separate their personal assets from their business liabilities, providing an essential safeguard against potential financial risks. Additionally, LLCs benefit from pass-through taxation, which can help avoid the double taxation issue faced by corporations. Moreover, operating under an LLC can enhance a contractor’s credibility with clients and facilitate potential business growth. However, it’s crucial to consider factors such as state-specific requirements, filing fees, and ongoing compliance when deciding whether to form an LLC. Independent contractors should consult with a knowledgeable attorney or tax professional to determine the most suitable business structure for their unique circumstances and goals.
Can a Physician Assistant Save on Taxes?
Most PAs, if they’re going to work as an independent contractor, they are going to create an LLC, and then they’re going to get a tax ID number and a bank account in the state that they’re working. And then they’re going to put all the compensation expenses through that account so that they can be tracked appropriately. And then at the end of the year, you can use all of those expenses as tax deductions for your LLC. I would suggest meeting with an accountant prior to taking on any kind of 1099 independent contractor position to set things up appropriately. And once you set it up, you’re good to go in the future as well. It’s not like you need to do it every single time. I would suggest that you absolutely do that prior to taking any kind of independent contractor job. The things you can ultimately deduct are essentially all the things that I went over with the licensure, DEA, travel, car expenses, and malpractice insurance. All of that stuff you can deduct from your compensation.
Can School or Health Care Expenses be Deducted?
Now, one thing to think about: if you’re working for, let’s just say a physician-owned practice. Employment taxes usually cost somewhere between 10 to 12%. Additionally, if they’re paying you as an independent contractor, they’re saving on offering you any of those benefits too. If they’re offering you the exact same compensation as an independent contractor versus maybe some of their employees, that’s not fair, they’re going to be saving somewhere between 10 to 20% on the total cost by classifying you as an independent contractor. So, there is some room for negotiation, as far as if you’re working, let’s say on an hourly rate, which most people would as an independent contractor, you should ask for a little bit more to kind of offset the savings that the employer is going to receive by classifying you as an independent contractor. I’d say anywhere between a 5% to 15% increase on the hourly rate would be considered, or at least I would consider a reasonable amount. They’re still going to come out ahead in the end as far as compensation and tax-wise. So, passing a little bit of that onto the PA just makes sense. That’s what a 1099 independent contractor physician assistant is.
Employee vs Independent Contractor
What is the difference between being an independent contractor and an employee as a physician assistant? As a PA, those who are maybe in the more surgical specialties assisting with surgeons, you certainly can have opportunities where it’s a kind of a part-time basis and it’s up to you when you want to assist. And in that scenario, it probably would make sense to be an independent contractor.
Independent Contractor Tax Deduction for a PA
As an independent contractor, you’ll receive a 1099 at the end of the year, and no taxes will be withheld from your compensation throughout the year. Now, the downside of being an independent contractor is you’re not going to get any of the benefits that you would receive as an employee who received a W2. Other topics of interest include:
- Physician Assistant Independent Contractor Tax Deductions
- Is a W2 or 1099 Better for a Physician Assistant?
Normally, as an employee, you’re going to get health, vision, dental, disability, life, and retirement, they’ll pay for your continuing education, your license, and DEA registration, you get paid time off, and they’ll pay for your malpractice insurance. The employer in a normal relationship is going to pay for all those things. Whereas as an independent contractor, you will be responsible to pay for all of that and secure it as well. Now, if you are a smart PA, you will create an LLC. If you’re interested in being an independent contractor, you’ll get a tax ID number from the federal government, an EIN, and then you’ll also create a bank account for that company. And then you’ll run all compensation and expenses through that account. That way, you can create tax deductions for all of those expenses that I just said, you can deduct the insurance and the license and the DEA and all of the travel, cell phone, all of the things that are necessary to work as a PA, you can deduct if you have the LLC and you’re working as an independent contractor. Now, there will be scenarios, most likely where you’ll approach an employer for a job.
Difference Between Employee and Independent Contractor Tax Deductions
And it’s a full-time job, it’s a normal nine to five, and they may say, look, we want to classify you as an independent contractor and pay you as such. Well, the IRS offers a 20-factor test that kind of determines or gives guidelines on, alright, is somebody an independent contractor or an employee? I find that most of the time if an employer is hiring full-time and wants them to be an independent contractor, they’re just doing that to get out of paying employment taxes. If you’re concerned that you’re being misclassified as a pa, I would look at that factor test and then approach the employer with your concerns that say, look, you’re treating me as an independent contractor, but you’re requiring me to do all of the things that a normal employee would do.
Plus, you’re not giving me any benefits. If you think about it, employment taxes can cost somewhere between 10 to 12%, and benefits can be somewhere between 8 to 12%, so they could be saving 20% on classifying you as an independent contractor. Now, the IRS can come in after the fact and say, well, you’ve been misclassifying this person. And then there can be some back taxes that are owed but it’s better to speak up in advance of signing anything if you’re concerned that you may be misclassified. Some people, even if there are tax advantages to being an independent contractor and even if they have a bunch of different part-time jobs, don’t want the hassle of going out and finding all of the malpractice and health vision, dental, disability, life, setting up retirement.
Some people simply have no interest in doing that. And so, if that’s the case, you need to look for jobs or you’ll be an employee and not an independent contractor. An independent contractor agreement should be kind of easy in, easy out, meaning the notice required to terminate the agreement should be shorter. You should avoid any kind of restrictive covenants. No non-compete, non-solicit, those types of things. They should theoretically be absent from an independent contractor agreement. Whereas you’re going to see all of those things in an employment contract, usually, somewhere between 60 to 90 days without cause notice. There’s always going to be a non-compete unless you’re in a state where it’s completely invalid. There are pros and cons of being an employee and an independent contractor. And it just kind of depends upon the situation that you’re in, whether it makes the most sense.
Self Employment Concerns
Can a physician assistant be self-employed? There are two types of employment relationships for a PA. You can either be an employee or an independent contractor. If you are an independent contractor, you would be considered self-employed, and let’s kind of break down the distinction between the two.
Self-Employed vs. Employee PA
If you’re working as an independent contractor, in most situations, that’s going to be when you’re working likely part-time, maybe if you’re in a surgical specialty, you’re assisting in surgery maybe a couple of times a month and the physician doesn’t want to employ you, well, then they would pay you as an independent contractor. And in that scenario, you would receive a 1099 at the end of the year, and no taxes will be withheld from any compensation that you would receive.
As an employee, you’ll receive a W2 at the end of the year, and all taxes will be withheld throughout the year. Now, the main difference between the two beyond the tax part of it, is you’ll get benefits as an employee. So, health, vision, dental, retirement, disability, and life insurance, they’ll pay for your continuing education, your license, and DEA registration, and you’ll get paid time off. Whereas as a 1099 independent contractor, when you’re self-employed, you won’t receive any of those. However, most smart PAs will create an LLC, get a tax ID number, an EIN, and then create a bank account for that business and then run all the compensation and expenses through that bank account. That way, they can track their expenses, and then they can deduct all of those expenses that I just mentioned before as business expenses.
So, travel, licensure, malpractice insurance, health insurance, cell phone, or any of the things that are necessary to practice as a physician assistant can be used as tax deductions if you’ve created an LLC. If you’re wondering, can you be self-employed? Certainly can, but it must be the right scenario. Now, there may be employers, and this certainly is true with physicians who want to make you work full time essentially as an employee but pay you as an independent contractor. And really the only reason why they want to do that is to get out of having to pay employment taxes, which are somewhere between 10 to 12% of your total compensation. And then if they also classify you as an independent contractor, as I said before, they’re probably not going to give you any of those benefits.
If you have an employer doing this saying, alright, well, you’re going to work full-time for us Monday through Friday, nine to five, whatever, but we’re going to classify pa’s as an independent contractor, they’re saving probably 20ish percent of your total comp when you add in all the benefits and employment tax. Well, they can be dinged if the IRS were to come back, look at the employment relationship, and then determine that you weren’t acting as an independent contractor. The IRS has a 20-factor test that kind of breaks down whether someone is an independent contractor or an employee. I would suggest looking at that and just Google it. You can find the test to determine where you fall on that. And then if you do have concerns, I would approach them with the employer prior to signing any kind of independent contractor agreement or employment agreement and just break down with them. Look, I believe you’re misclassifying me as an assistant.
Potential Issues if Employment Status is Not Clarified
Here are the potential problems with that. It can be advantageous on a tax basis to be a 1099. Now, some PAs just simply don’t want the hassle of having to get and set up all of those things. They don’t want to have to go out and get their own health insurance, and vision and dental, and set up retirement and get a life insurance and disability policy, pay for their own stuff, their CE, get no paid time off, like a lot of PAs just aren’t interested in that. In that way, in that scenario, obviously being an independent contractor is not the right way to go. However, the more entrepreneurial in nature as an independent contractor, theoretically, it should be kind of at your option of when you want to work. And so, they can work for multiple different physicians and maximize their income in that way.
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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