1099 vs w2 pay/insurance

[Backpack234]

Assuming I would work for a large company that provides the option for W2 or 1099 employment, and that my SO works full time and can provide us with benefits, is there any reason to be a w2 instead of 1099? The differences I see are:

- Lower wages with w2 but more benefits (that may be redundant with my SOs benefits), higher wages as 1099
- 401k limits as w2, SEP IRA limits as 1099
- payroll taxes covered by w2, paid from 1099
- no deductions as w2, deductions as 1099.

Is there anything I'm forgetting? Specifically for ER, too, are there any differences in malpractice coverage? I believe that if you're a w2, the employer is always dragged into a malpractice case as your supervisor, but does that work with 1099 as well or are you on your own in a suit? and is that good or bad?

Anyone with experience in this area?

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[cyanide12345678]

Do 1099 especially if you get benefits elsewhere. If you make enough get taxed as s corp, save on Medicare and SS taxes. Deduct business expenses as well. I probably saved around 10-15k in taxes because of 1099, mostly because of the 199a deduction. And i also usually deducted about 12-15k of expenses as well, a lot of which was mileage. Plus you can do a solo 401k and put in 57k to really drop your tax burden. 1099 is always better.

I'm back to w2, but my priorities are different now. Money is less important. Seeing less volume and having a better life is more important to me now which i was getting through a university job in a rural community shop. Saw 8 patients tonight and slept 4 hours in my 12 hour shift today.

 

[cyanide12345678]

Also either way most 1099 contracts, you still have paid malpractice insurance from the "employer". It doesn't make any difference at all.

 

[turkeyjerky]

Do 1099 especially if you get benefits elsewhere. If you make enough get taxed as s corp, save on Medicare and SS taxes. Deduct business expenses as well. I probably saved around 10-15k in taxes because of 1099, mostly because of the 199a deduction. And i also usually deducted about 12-15k of expenses as well, a lot of which was mileage. Plus you can do a solo 401k and put in 57k to really drop your tax burden. 1099 is always better.

I'm back to w2, but my priorities are different now. Money is less important. Seeing less volume and having a better life is more important to me now which i was getting through a university job in a rural community shop. Saw 8 patients tonight and slept 4 hours in my 12 hour shift today.

Agree with most of this, other than the above. Plenty of people are in the situation where W2 is objectively better than 1099.

I think for many, the tax implications are essentially a wash (with 1099 you get deductions, but have to pay self-employement taxes: medicare and SS). Consider whether you get any type of employer match w/ retirement contributions if W2.

For the most part, however, if your spouse is getting health insurance, than you'd be better off w/ 1099 provided there's an extra $25/hr or so.

My old employer used to pay 200/hr as W2 vs 250/hr as 1099 fwiw.

 

[bravotwozero]

W-2 employees get due process, 1099s get fired on a whim. That’s important to consider.

 

[calvnandhobbs68]

Agree with most of this, other than the above. Plenty of people are in the situation where W2 is objectively better than 1099.

I think for many, the tax implications are essentially a wash (with 1099 you get deductions, but have to pay self-employement taxes: medicare and SS). Consider whether you get any type of employer match w/ retirement contributions if W2.

For the most part, however, if your spouse is getting health insurance, than you'd be better off w/ 1099 provided there's an extra $25/hr or so.

My old employer used to pay 200/hr as W2 vs 250/hr as 1099 fwiw.

Tax implications are not a wash. The tax situation gets objectively better the more income you make 1099 especially for the next several years you are considered a pass through entity even as a sole prop (which means 20% of income right off the bat is tax deductible) and may be permanent if the pass through deduction survives. The 12.4% SS tax is also only taxed on the first 147K you make in 2022 (goes up a few thousand every year). After that you’re ONLY paying the Medicare portion plus 0.9% over 250K income. Plug the numbers into a self employment tax calculator and you’ll see the self employment differences between 300 to 350k for instance are almost negligible and 70K of that 350K is immediately deductible as a sole prop.

 

[southerndoc]

Tax implications are not a wash. The tax situation gets objectively better the more income you make 1099 especially for the next several years you are considered a pass through entity even as a sole prop (which means 20% of income right off the bat is tax deductible) and may be permanent if the pass through deduction survives. The 12.4% SS tax is also only taxed on the first 147K you make in 2022 (goes up a few thousand every year). After that you’re ONLY paying the Medicare portion plus 0.9% over 250K income. Plug the numbers into a self employment tax calculator and you’ll see the self employment differences between 300 to 350k for instance are almost negligible and 70K of that 350K is immediately deductible as a sole prop.

I thought professionals like physicians were explicitly forbidden from using the passthrough deduction. Did something change?

 

[cyanide12345678]

I thought professionals like physicians were explicitly forbidden from using the passthrough deduction. Did something change?

I've used it last 2 years without issue.

 

[bravotwozero]

I've used it last 2 years without issue.

Same.

 

[calvnandhobbs68]

I thought professionals like physicians were explicitly forbidden from using the passthrough deduction. Did something change?

Nope not true but it is complicated. It's phased out for "Service Business Owners" (physicians fall under this) gradually starting at $329,800/$164,900 (married filing jointly/single) to completely phase out at $429,800/$214,900 QBI. So yeah, if you're single, you phase out completely pretty quick if a 1099 is your only job...but as with everything else in the tax code it pays to be married lol. If you're single, 1099 as your only job probably won't be able to take advantage of this.

 

[southerndoc]

Nope not true but it is complicated. It's phased out for "Service Business Owners" (physicians fall under this) gradually starting at $329,800/$164,900 (married filing jointly/single) to completely phase out at $429,800/$214,900 QBI. So yeah, if you're single, you phase out completely pretty quick if a 1099 is your only job...but as with everything else in the tax code it pays to be married lol. If you're single, 1099 as your only job probably won't be able to take advantage of this.

Yea, I'm above that threshold. Maybe that's why I haven't been able to use it.

 

[GassYous]

Yea, I'm above that threshold. Maybe that's why I haven't been able to use it.

ballin

 

[thegenius]

I thought professionals like physicians were explicitly forbidden from using the passthrough deduction. Did something change?

I've used it both through a CPA and turbotax. It's legit and I have deducted like 30-35K off my taxable income both years. It's great. It's saved me like 10K real money.

 

[thegenius]

Yea, I'm above that threshold. Maybe that's why I haven't been able to use it.

Assuming your married...if your taxable income is greater than 429,800 then you're doing quite well.

 

[thegenius]

A few things regarding W2 vs 1099
- you gotta compare the entire compensation package for both jobs. We just had a thread on this. It's not always 1099 is BETTER than W2.
- you do get to deduct business expenses, but the typical ER doc doesn't have that many. I'm talking about the average ER doc. They work at one or two hospitals, and don't have much to deduct. Licenses, food for nurses, equipment (stethoscope), cell phone, some internet, etc. It's not like we have wages to pay, rent, or other large ticket items. Remember I'm taking about the average ER doc. My business expenses are about 10K / year. I used to add in a Home Office but it's getting harder and harder to justify it so the last year I didn't take it. It sucks because I drive like 16K miles a year and I can't deduct those miles if I don't have a home office.
- You can turn yourself into an S-Corp or something similar if you are a 1099...but even that often isn't worth it. I did it and it cost me like 5-6K just to hire someone to pay myself with my own money. It wasn't worth the expense. Being a 1099 though is easy. I take out 29% of every paycheck and put it in a separate bank account. This is for taxes. Every quarter I cut a check to the Fed and state of CA.

 

[BoardingDoc]

Assuming your married...if your taxable income is greater than 429,800 then you're doing quite well.

As an EM doc, if you marry someone who also works (obviously barring them being a teacher and you working in Denver) this is an easy target to hit.

 

[Apollyon]

Assuming your married...if your taxable income is greater than 429,800 then you're doing quite well.

Ask him what car he drives.

(But not so rich that he has a driver!)

 

[southerndoc]

Assuming your married...if your taxable income is greater than 429,800 then you're doing quite well.

I can't complain. My wife stays at home doing photography and consulting work, but my sole income is well above that preventing me from taking the deduction.

 

[Phantom Spike]

Nope not true but it is complicated. It's phased out for "Service Business Owners" (physicians fall under this) gradually starting at $329,800/$164,900 (married filing jointly/single) to completely phase out at $429,800/$214,900 QBI. So yeah, if you're single, you phase out completely pretty quick if a 1099 is your only job...but as with everything else in the tax code it pays to be married lol. If you're single, 1099 as your only job probably won't be able to take advantage of this.

That's disappointing re: the thresholds for phase-out for single taxpayer's QBI. For those who want to make a 1099 their only job, even if you deduct health care premiums and HSA contributions and maximize contributions to a solo 401(K) (which is $61,000 for 2022 I believe), one would want to earn above that. Are there any other strategies to reduce QBI?

Also, any disadvantages to a SEP-IRA vs a solo 401(K) for a 1099-er, sole prop? A SEP-IRA seems simpler to set up and manage.

 

[bravotwozero]

That's disappointing re: the thresholds for phase-out for single taxpayer's QBI. For those who want to make a 1099 their only job, even if you deduct health care premiums and HSA contributions and maximize contributions to a solo 401(K) (which is $61,000 for 2022 I believe), one would want to earn above that. Are there any other strategies to reduce QBI?

Also, any disadvantages to a SEP-IRA vs a solo 401(K) for a 1099-er, sole prop? A SEP-IRA seems simpler to set up and manage.

easier to do backdoor ROTH IRAs with a solo 401K and not worry about tax consequences. For now, looks like the backdoor roth will survive.

For most IC EPs, maximizing your deductions ought to bring down your taxable income enough to qualify for QBI. If not, you're doing very well for yourself, like probably $500k pre-tax or more.

 

[CliveStaples]

I’d advocate for having both forms of income available to you for the best of most of both worlds.

I have a primary W2 job where total compensation (retirement, vacation, CME money, health insurance, dental insurance, disability insurance, life insurance) is competitive with 1099 compensation. I work the base hours there for benefits and earn most of my compensation that way, so I’m not paying the employer portion of payroll taxes. Then I work extra as a 1099 which opens the door to all my work related spending being tax deductible and then making a higher pay rate than working extra at my W2 job (where only the base hours are as “valuable” since they earn me my benefits - working beyond that isn’t as lucrative as working extra as a 1099).