What is a 1099 Physician?
What is a 1099 physician? I think a common misconception amongst some new physicians just out of training is the difference between being an employee versus an independent contractor. And then also, what is a W2 versus a 1099 employee. Let’s kind of work through those things. First, an employee is considered a W2 compensated professional. At the end of the year, you’ll get a W2, which just provides all of the salary, compensation you received, and all the taxes that were taken out of it. As a W2 employee, you’ll just get a regular pay period check in addition to whatever the bonus compensation you’ve worked out with the employer. As far as a 1099, an independent contractor is a 1099.
And a 1099 is simply a form that goes out at the end of the year that states how much you received from the business that you were contracted with. No taxes are taken out for any 1099 individual. One issue that comes up is if a physician has never been an independent contractor before, it’s very easy to spend the money that you receive. And then at the end of the year, they have to write a huge check which can be shocking to some. One piece of advice, and I had to do this myself as a small business owner, is you need to make certain that you set aside money to pay for your taxes, either quarterly or at the end of the year, depending upon how you want to do it.
A 1099 physician refers to an independent contractor doctor who receives payment reported on Form 1099-NEC. Unlike W-2 employees, taxes are not withheld from a 1099 physician’s income. Instead, they receive the full gross pay outlined in their contract. Consequently, 1099 physicians must manage their taxes more diligently, including making estimated quarterly tax payments, tracking deductible expenses, and potentially paying self-employment taxes. It is vital for independent physicians to consult with a tax professional to ensure accurate and timely tax compliance, thus avoiding penalties and maximizing deductions.
What Are the Advantages of Being a W2 Versus 1099?
What are the advantages of being a W2 versus a 1099? First, as a 1099, you’re not going to receive any of the benefits that you would receive as an employee. A normal employer is going to pay for your malpractice insurance, licensing, DEA, credentialing, privileging, and CME. They’ll probably give relocation assistance or a signing bonus. All of the things, all of the expenses that go into being a physician, you will not receive as a 1099 independent contractor. Many employers or businesses that work with physicians that are 1099, also put all of the negatives of an employment contract into the independent contractor agreement.
The whole point of an independent contractor agreement is it’s kind of easy in, easy out. You don’t have to provide that much notice to leave. And then, hopefully, wouldn’t be all of the negative things associated with the contract after it terminates, so the restrictive covenants like a non-solicitation agreement, a non-compete, confidentiality clause. I find that for most employers that utilize 1099 physicians, one of the main reasons is simply to get out of paying employment tax. So, the physician is disadvantaged in that, one, they get none of their benefits paid for, and then two, they’re going to have all the negatives of an employment contract with potentially an onerous non-compete, and even potentially a long notice period required to terminate the agreement as well.
1099 Physician Tax Deductions
A 1099 physician, as an independent contractor, has access to several tax deductions that can lead to substantial savings. Key deductions include health insurance premiums, contributions to Health Savings Accounts (HSAs) which grow tax-free, and expenses related to professional development, such as continuing education, conference fees, and travel. Moreover, 1099 physicians can deduct costs for office supplies, equipment, malpractice insurance, licensure fees, and even home office expenses if they meet specific criteria. By meticulously tracking and documenting these expenses, independent physicians can effectively reduce their taxable income, ultimately maximizing their savings. Consulting with a tax professional is highly recommended to ensure proper deduction claims and tax compliance.
What are the benefits of being a 1099? Well, there are some tax advantages. I’m not a tax attorney, so I’m not going to get into this, but there are tax advantages to being a 1099 independent contractor versus an employee. You can deduct most of those expenses that I already went over, but you’re also not going to have any of the retirement options offered by the employer, and then all of the healthcare insurance-related benefits like health, vision, dental, life, disability. All those things you would normally get from an employer, you’re going to have to find yourself and I can tell you, it’s not easy finding all of those things when you are on your own. So, one of the main benefits of being an employee is that you get all those things offered to you easily, and you don’t have to spend time looking for them on your own.
So, all of the negatives of being a 1099 are also the benefits of being an employee. As I said before, they’re going to pay for your malpractice insurance, all your dues and fees, offer you all of those things, the health, vision, dental, life, disability, retirement, it’s just kind of a more secure relationship. Every physician will have what’s called without cause termination in their contract. And what that means is either party can terminate the agreement at any time, for any reason, with a certain amount of notice to the other party. Normally, it’s between 60 to 90 days for an employee. An independent contractor, theoretically, should be less than that. So, maybe two weeks to 30 days. Now, continuity of care must be considered. You can’t just call your employer up one day and say, hey, I’m not working for you ever again, or I guess, maybe not employer, but if you’re an independent contractor, there must be some continuity of care considered.
Specialties Utilizing 1099
Now, the two specialties that utilize independent contractor agreements the most are anesthesiologists and dermatologists. Why is that? I can tell you. For anesthesia, it makes sense. You can kind of just pop in, do case to case, you don’t have to follow up much if you’re not in pain and it’s simple. As far as dermatology goes, you will have a patient base and that will have to be transitioned to another physician when you leave. That needs to be considered as well. So, that’s what a 1099 physician is and the advantages and disadvantages of going into that. If you have an independent contractor agreement, I suggest getting it looked at to kind of talk this through with an attorney. And I hope this information was helpful.
Other Blogs of Interest
- How Long Are Most Physician Contracts? | Physician Contract
- Can a Non Compete be Enforced on a 1099 Employee (Independent Contractor)?
What Are Different Types of Physician Contracts?
What are the different types of contracts physicians can sign? There are two: You have an independent contractor agreement. Then, you have the employment agreement. So, what are the differences between the two? An employment agreement means an employer and the physician an employee. They are a W-2 employee, meaning tax deduction is out of whatever compensation they have. And then, the employment agreement will go through the general terms of the relationship:
- How long does the contract last?
- How is it terminated?
- The process of compensation
- The liability insurance
- Restrictive covenants
That type of thing. In an independent contractor agreement, you are not a W-2 employee. You’re a 1099 employee. That means no tax deduction of whatever the physician received via compensation.
Physicians Being an Independent Contractor
The physician will be responsible for paying their taxes quarterly at the end of the year. Another big difference is for most independent contractor agreements. The physician will be responsible for all of the ancillary costs associated with the practice:
- Medical license
- DEA, registration
- Professional associations
- Privileging and credentialing
- Malpractice insurance
- Whether they have to pay tail insurance
Those things are generally the cost of the independent contractor, not the person they’re working for. Sometimes, the employer utilizing the independent contractor will pay for certain things. Still, I guess another key point is that an independent contractor will also rarely get benefits. Health, vision, dental, disability, life insurance, and retirement are unavailable. So, why would someone, if given a chance, choose to be an independent contractor?
Employment Agreement From the Practice
The entire point of an independent contractor agreement is that it’s easy to get into and out of. And theoretically, the independent contractor should be able to make their schedule work when they want that type of thing. However, that doesn’t honestly happen very often. An independent contractor, if they’re smart, they’ll create an LLC. Then they’ll have some money paid and set up a bank account. They can expense all of those things I talked about previously. I find that most employers who, I don’t know, if force is the right word. They only offer the independent contractor agreement option. Maybe they’re not solely doing that, but they’re doing it often to avoid paying employment tax to the physician.
Honestly, an independent contractor agreement for a physician does not have many benefits. A long notice is a requirement to terminate the agreement if it still includes restrictive covenants.
Physician Employment Contract Depending on Specialties
As I said, they don’t get paid benefits or other licensing. Let us take anesthesiologists and dermatologists. Those are specialties that frequently use an independent contractor. Some radiologists as well, but primary care, peds, cardiology, that type of thing, are almost always going to be employees. And then, if you are working for a hospital or healthcare network, 100% of the time, you’ll be an employee rather than an independent contractor. Maybe you’re working at a hospital, but you’re working for a group contracted with the hospital to provide services. I guess that’s possible where you’d be an independent contractor, but it doesn’t happen often. So, the two types of physician contracts are independent contractor agreements and physician contracts of employment.
Can a Physician Be an Independent Contractor?
One question that comes up occasionally is, are physicians independent contractors? The answer to that depends on what kind of contract you signed. There are two types of contracts for doctors. You have employment agreements and then independent contractor agreements. With an employment agreement, you’re an employee. Then the contract you signed will specify all the terms. What the physician needs to do and what the employer needs to do. Then in an independent contractor agreement, many of those terms are the same. Still, there’s much less detail in an independent contractor agreement for some employment agreements. Let’s briefly go through the two, and then we’ll get back to when a doctor is an independent contractor.
Independent Contractor Physician Contract
An independent contractor physician contract is a comprehensive, legally binding document that outlines the terms and conditions of engagement between a medical professional and a principal organization, such as a hospital, clinic, or medical facility. This agreement typically covers critical aspects such as compensation structure, work schedule, scope of services, professional liability insurance, confidentiality, and termination clauses. A well-drafted contract ensures that both parties have a clear understanding of their respective responsibilities, rights, and expectations, thus safeguarding their interests and facilitating a successful professional relationship. It is strongly advised that physicians consult with an experienced attorney to review and negotiate the terms of their independent contractor agreements, ensuring protection and fair treatment.
Independent Contractor Agreement for Doctors
The main differences are one, in an employment agreement. The physician receives payment via W-2. Then, the employer will pay for most of the things necessary to be a doctor:
- DEA registration
- Practice insurance
- Any expenses associated with being a doctor.
You’re not receiving payment as a W-2 employee in an independent contractor agreement. Your payment is via 1099. That means the doctor must take out the taxes when they file their returns. Then, mostly, the entity contracting with the independent contractor won’t pay the dues, fees, and other expenses. So, the physician will be the one that pays for the license, DEA, and continuing medical education. There are also no benefits associated with an independent contractor agreement generally. So employers won’t provide health vision, dental, life, disability, retirement, and all that stuff to the independent contractor. Another question is, what’s better for me, and what’s the point of both? I find it’s very specialty-dependent. Anesthesiologists and dermatologists have more independent contractor agreements than any other specialties. Suppose a physician is self-employed. Then, they’re essentially taxed as an independent contractor, although they would not receive 1099.
Medical Practice Tax Considerations
Some of these practices only utilize independent contractor agreements because they can avoid paying employment taxes. These are essentially quasi-employment agreements. The doctors kind of act as employees, their schedules set for them. They’re using the employer’s facilities and supplies and staff. However, if a physician isn’t an independent contractor, they would generally create an LLC. Then they would run all of the payments through the LLC bank account. They would also be able to deduct the expenses. I went through all the things before licensing CME, malpractice, insurance, tail insurance, and all that kind of stuff as well. I mean, if I had to weigh one versus the other. Suppose the physician does have the choice between the two. Then, it would depend upon the compensation structure whether it would be worth accepting an independent contractor agreement.
Physician Employee or Independent Contractor?
If it’s based purely on net collections, sometimes it is more lucrative to be an independent contractor. Still, suppose I have to give a percentage of which way a physician ultimately benefits more. In that case, it’s probably like 80/20 employment agreements. That’s because all the things the independent contractor has to pay for, which the employer provides, add up over time. Then another thing to think about is some individual physicians can’t get some of the things that a larger employer can. It isn’t easy to get individual health insurance because it’s expensive. Then all the other things, vision, dental, life, disability, malpractice, and tail insurance, add up quickly.
Anyway, if a physician’s debating between the two, I wish I could give a better answer besides it. It depends, but that’s an overview of whether doctors are independent contractors or not. It just depends upon what kind of contract they signed.
Physician Independent Contractor vs Employee
Considerations for a physician as an employee versus an independent contractor. Let’s kind of break down both. If you’re an employee, you will receive a W2 at the end of the year. It just summarizes all the compensation you’ve received and then all the taxes that have been withheld. If you’re an independent contractor, you will not receive a W2, you’ll receive 1099 at the end of the year. That’s just a summary of the compensation received from that business. No taxes are withheld as an independent contractor. Let’s take the relationship between the two and start with when you’re an employee.
Dues and Fees Coverage Under W2
You will receive all the benefits of normal employment when you’re an employee. They’re going to pay for your malpractice insurance. The employer will pay for your health, vision, dental, life, disability, retirement, privileging, credentialing, and continuing medical education. They’ll probably provide you with moving expenses and another signing bonus. You get a lot of ancillary benefits as an employee.
Maximizing the Deduction on Taxes of 1099
Now, for some, ultimately, you come out ahead compensation-wise. As for the 1099, you can deduct all the things I just discussed. There are some tax advantages to being an independent contractor. I’m not a tax attorney; I’m not going to get into that specifics, but I would suggest reaching out to an accountant with experience. I can walk you through the most advantageous compensation/tax situation. It’s going to be very specific to the job. Suppose someone asks me if potentially they had the option of either being an employee or an independent contractor. In that case, several factors must be taken into account.
I find it’s rare for it to be the option of the physician. Normally, the position is either going to be this or that. It’s not up to you. I mean, it’s very rare when I review a contract that we have to discuss, alright, well, I do have two options and two contracts. Which way do you think I should go? Most physician-owned businesses simply don’t give the option to the physician. It’s either one or another.
Common Mistakes of Independent Contractors
Now, maybe you have two separate jobs, one is an independent contractor, and one is an employee. Then you’ll have to determine what situation is best for you. But it depends upon the physician. I find some physicians who work as independent contractors do some things wrong.
One, they don’t know where to go to get the things a normal employer would provide them. So, all those insurances and retirement and that type of thing, and they’re just not the type of person who is good at handling that side of their life.
Two, with no taxes being withheld from your compensation. I find many of them spend what they get. Then, either they’re not giving their quarterly payments to the government or year-end. They have an enormous tax bill that they were maybe shocked that they have to pay out. So, suppose you are going to be an independent contractor. In that case, you need to be on top of it. I need to withhold or set aside this amount from each paycheck I get from the business. That way, you’re not screwed in getting all the money that needs to be paid for your taxes annually.
It’s probably safer and more secure to be an employee versus an independent contractor.
Required Notice Period
Usually, the notice required to terminate the agreement is shorter for an independent contractor. That means either party can get out of the agreement without much notice. Now, as a physician, continuity of care always has to be taken into account. If you’re an independent contractor unless you are in a specialty where it’s just like shift work or maybe if you’re anesthesia. You pop in, you do the case and leave. But suppose you are a physician with a patient base, and you’re providing care to them if you tell your employer, hey. In that case, I’m not coming in tomorrow. Some continuity of care issues could lead to board complaints or other problems down the road. So, that needs consideration as well.
What is the notice required to terminate the contract? It’s usually 60 to 90 days if you’re an employee. In contrast, if you’re an independent contractor, you don’t see many notice periods less than 30. Still, sometimes it might be as low as two weeks for an independent contractor agreement.
So, that’s a little breakdown between being an independent contractor and an employee as a physician. As I said before, you need to look at the situation. Then, determine that compensation-wise doesn’t make the most sense considering the tax deductions and that type of thing.
Is a Physician an Independent Contractor? | Medical Doctor
One question that comes up occasionally is, are physicians independent contractors? The answer to that depends on what kind of contract you signed. There are two types of contracts for doctors. You have employment agreements and then independent contractor agreements. With an employment agreement, you’re an employee. Then the contract you signed will specify all the terms. What the physician needs to do and what the employer needs to do. Then in an independent contractor agreement, many of those terms are the same. Still, there’s lesser detail in an independent contractor agreement for some employment agreements. Let’s briefly go through the two. Then we’ll get back to when a doctor is an independent contractor.
Independent Contractor Agreement for Doctors
The main differences are that in a physician employment agreement, the physician receives payment via W-2. Then, the employer will pay for most of the things necessary to be a doctor:
- DEA registration
- Privileging, Practice Insurance
- Expenses associated with being a doctor.
You’re not receiving payment as a W-2 employee in an independent contractor agreement. You receive payment via 1099. That means the doctor must take out the taxes when they file their returns. Then, most of the time, the entity contracting with the independent contractor will not pay for the dues, fees, and other expenses.
So, the physician will be the one that pays for the license, DEA, and continuing medical education. There are also no benefits associated with an independent contractor agreement generally. So health vision, dental, life, disability, and retirement. The employer won’t provide all that stuff to the independent contractor. Another question is, what’s better for me, and what’s the point of both? I find it’s very specialty-dependent. Anesthesiologists and dermatologists have more independent contractor agreements than any other specialties.
Medical Practice Tax Considerations
Some of these practices only utilize independent contractor agreements. That is because they can avoid paying employment taxes. These are essentially quasi-employment agreements. The doctors kind of act as employees, their schedules set for them. They’re using the employer’s facilities and supplies and staff. However, if a physician isn’t an independent contractor, they would generally create an LLC. Then they would run all of the payments through the LLC bank account. They would also be able to deduct the expenses. I went through all the things before licensing CME, malpractice, insurance, tail insurance, and all that kind of stuff as well.
I mean, if I had to weigh one versus the other, usually, if the physician does have the choice between the two. It would depend upon the compensation structure. That is whether it would be worth it to accept an independent contractor agreement. If it’s based purely on net-collections, sometimes it is more lucrative to be an independent contractor. Still, suppose I have to give a percentage of which way a physician ultimately benefits more. In that case, it’s probably like 80/20 employment agreements because all the things the independent contractor has to pay for, those provided by the employer, add up over time.
Then another thing to think about is some individual physicians can’t get some of the things that a more significant employer can. It isn’t easy to get personal health insurance because it’s expensive. Then all the other things, vision, dental, life, disability, malpractice, and tail insurance, add up quickly. Anyway, if a physician’s debating between the two, I wish I could give a better answer besides it. It depends, but that’s an overview of whether doctors are independent contractors or not. It just depends upon what kind of contract they signed.
What Percentage of Physicians Are Self-Employed?
What percentage of physicians are self-employed? Let’s talk about the types of employment relationships for a physician and how many are self-employed. You have an employee, a W2, or an independent contractor for any physician, and that physician would receive 1099. Now, suppose you are an independent contractor. In that case, you are self-employed if you have an LLC and if you solely work as an independent contractor. In contrast, you are not self-employed if you’re an employee for a hospital network, maybe a larger privately owned physician group, or conglomerate. Now, regarding how many or what percentage of physicians are self-employed, let’s discuss the definition of self-employed.
What Does Self-Employed Mean?
In my mind, self-employed means you are a solo practitioner working independently without any partners or having a shareholder percentage. You are a solo practitioner, and statistics show that around 14.8% of all physicians currently practicing in the United States are self-employed physicians. It seems like a relatively low percentage, but if you pay attention to the trends in the healthcare industry. There’s been a huge push from these big hospital networks to gobble up all of these physician-owned practices. Then, integrate them into their systems, so the percentage of self-employed physicians has continued to decrease over time. I believe, at one point, it was between 30% to 40% 20 years ago. And now, it just slowly decreased over time. Is that a bad thing? I don’t think it’s bad or good.
The Benefits of a Solo Practice Brought By Big Hospital
I think the benefits of, if you’re in solo practice, being bought out by a big hospital network. One, they’re going to drop the bag so you’ll get paid. At least you should get a decent amount of money to sell your practice to the hospital network. But I find the practical advantage for most physicians is they no longer must deal with the oversight of the practice. So, all the administrative duties, all the things that are the headaches of being a small business owner. Which I am, and what I deal with weekly, just worrying about payroll and insurance and dealing with the lease and paying the internet and the electricity. All the small things, the finances with the bookkeeping, are taken away from you if you’re a self-employed physician. Then you sell out to a larger group or hospital network. Many physicians love not having those responsibilities.
The Downside of Not Being a Self-Employed
The downside is that you will likely make less money as a physician if you are not self-employed. If you’re self-employed, you can do things exactly how you want them. They can be more efficient. You can hire as many people as you want to hire and compensate them in the exact way that you want to compensate them. Many self-employed physicians can do very well for themselves. Now, some physicians are not good businesses, which would go for any profession. Some people are great at their job, lawyers included, but might not be the best businessperson.
And so, identifying a physician’s strengths and weaknesses and then determining what type of employment structure best suits them is certainly important. Around 15% of all physicians are currently self-employed. I mean, it seems like it ebbs and flows over time. I remember when I started law school around 20 years ago. Most of these extensive hospital networks were buying practices. And then, five years later, they started investing in them. So, I think it ebbs and flows over time. But right now, we’re in a stage where these big hospital networks are gobbling up all these smaller physician-owned practices.
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