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Discussion in 'Anesthesiology' started by YGK, Feb 28, 2010.
I know that 1099 is independent contractor no benefits, what are the pro and cons.... thanks
I can only speak to what I have to do as 1099 contractor. One advantage is that you can control how much you pay yourself or leave in a P.A. (professional association). You control when you pay yourself. As an independent contractor, by definition, should not be controlled by anyone else regarding how you carry out your specific professional responsibilities. To that extent, you may have more autonomy from an employer (of course that has not helped me much personally if you check my other recent posts).
In my mind the best benefit to being a 1099 contractor is the ability to control a retirement account. I set up a defined benefit plan, and I control the timing/amount of contributions within certain parameters based on my planned retirement date, and desired retirement benefit. This defined benefit retirement account has allowed me to contribute a far greater amount per year (tax-deferred) compared to any retirement plan possible as a W-2 employee. I also can pay for business related expenses directly out of the PA (business account).
On the downside, as a 1099 contractor I have to have quarterly tax reports, pay tax each time I pay myself (the government will hound you and charge penalties for being late). Overall, I much prefer being a 1099 contractor.
I've been paid on W-2 and 1099, (real world jobs, I'm a non-trad). Don't forget office in home if you have one. Could be a nice write-off. If you have a two-bedroom it may let you write off 1/2? 1/3 of rent/payment. I am NOT a CPA, but I used to write off a home office. Especially during those 1099 years. Travel. Car. Cell. New computer, programs, accessories. I'm a tv writer, so believe it or not, DVDs, TV, movies, cable bill is all RESEARCH. Yeah, tell me about it. Not to say that I used all those routes at the end of the year. And I certainly didn't buy a 50,000$ piece of art and hang it on my office wall and write that off either. Like another writer buddy of mine.
With a 1099, just keep one thing in mind: pay taxes quarterly or put aside, eventually, you'll have to write that check. The downside of being a 1099 (writer), is you're on your own for health insurance and benefits. And that sucks.
somewhere on here there was a tread that said a 1099 position had to offer 70k more to be comparable to a w2, to compare apples to apples. now of course i can't find that thread... would you guys say thats about right?
No. I disagree with that amount quoted. 1099 offers income tax savings which can be substantial. A 1099 which offers malpractice insurance (some do) is close to a W-2 with benefits if both jobs pay over $400K. I would say within $10K (edge goes to the W-2 job) of each other. If malpractice isn't included then a 1099 needs to offer around $30K more than a W-2 to be equivalent. The tax savings of a high paying 1099 job in a location with 6-7% state income tax is substantial.
There's no way to know. It all depends on how much your benefits cost, pension setup, % of "profit" that has to go to Social Security and Medicare, etc. I would think it could EASILY be that much if not more.
Another thing to keep in mind - you can do BOTH W-2 and 1099 if you're working with multiple employers.
I work full time for my group as a W-2 employee. I moonlight as a 1099 contractor at another facility. That 1099 status allows me to write off TONS of expenses that I would not normally be able to write off as a W-2 employee, including licensing and certification costs, educational expenses, and portions of my professional association dues. It's the best of both worlds.
Does the 1099 gig cover your malpractice or do you have a separate policy or does the W2 position cover you or do you go nekkid?
Is there an accepted fact that the majority of anesthesiologists are either 1099 or W-2?
Academic? W2 I would think yes?
PP? 50/50? 80/20?
Every job that I looked at except Kaiser was 1099. I don't think it makes a difference as long as you have a rough idea of what your expenses are (malpractice, health insurance, retirement, etc) and you are being compensated appropriately. When considering W-2 you need to understand that there are different packages that groups will offer. Some pay only malpractice and health, other pay retirement, some pay CME and there are a million variations. Once you have an idea of how much those expenses cost you can start to compare the jobs. Sure you may not be able to make an exact apples to apples comparison but if the compensation looks fairly similar after accounting for expenses, it probably doesn't matter if you take the 1099 or W-2 from a monetary point of view and you should probably decide on which job to take based on other factors (location, case load, call burden, hospital, partners, etc). Just remember that an extra 5 or 10k may sound like a lot but its going to be taxed @ 40% and then divided by 12 so you're only talking about a couple hundred dollars per month after taxes, not enough IMO to make a difference between choosing one form of payment over the other
Typically qouted number is 11% more expensive to have a W-2 employee. I hire both W-2 and 1099 for my CRNAs. That number is about right not counting any benefit package.
In looking for jobs, a W-2 with a great benefit package is just as good as a 1099 position. But a W-2 job that offers very little benefits is subpar. You can only deduct a certain amount of expenses if you are W-2. A great option for a person getting into a W-2 position is what has been mentioned before: Have a moonlighting gig and do that as a 1099. That way you get the best of both worlds. Check with your accountant, but you may be able to put away more for retirement that way too.
Another point not yet mentioned: If you are a true 10-99 "self -employed" person, you will encounter a few issues in addition to the lack of health insurance benefits, need to pay quarterly taxes, etc. That is, whenever a "self-employed" person applies for credit for a car or home, that person is deemed a "higher risk" due to the perceived likelihood of that business failing. (Think pet store or bagel shop.)
Additionally, when anyone is a 10-99 independent contractor, that person will file a schedule C on their tax return. This basically is a sworn statement as to how much money you made for that year. Guess what the IRS thinks of persons who file a Schedule C? Right. Turns out that the IRS audits these folks at a much, much higher rate than those taxpayers who only file a W-2 income (100X higher, according to my accountant). Makes sense if you think about it, since they otherwise are just trusting people to be honest.
So, the solution to these issues is to incorporate. By forming a professional corporation, you can pay yourself as an employee. That way, you the doctor receives a W-2 from your own professional corp. If you have a spouse who helps out in even a limited fashion (clerical stuff such as mailings, etc) they can be W-2'd as well. Once you have at least 2 employees, including yourself, you now suddenly qualify for small group health insurance rates and programs which are MUCH cheaper than buying as an individual. Retirement plan is up to the president of the corporation (you), so no compromises here. Business expenses include car expenses, CME's, books, clerical supplies, phone service, internet service, computers, health and malpractice ins, etc etc. Best of all worlds. No schedule C, no self-employed penalty on credit applications, etc. Also, there is a great deal of flexibility (WAY MORE) as to how to pay taxes. Don't want to go too deeply into it here (unless you guys are interested) but suffice it to say you can structure your payroll periods however you like.
This does require a few costs up front, but the savings far outweigh the costs, trust me.
Health insurance is becoming a big issue for many of us. With obamacare passed last year, in May 2010 all major insurance stopped offering OB insurance riders for all sell employed unless you are part of group plan.
In September 2010 all insurance stopped offering children only health plans (because the pre existing exclusion clause was nullified for kids starting in September 2010). Insurance companies think parents won't insure their kids until they are sick. So they stopped offering children only plans.
For me my health premiums cost run over $8000 a year and a $7000 high deductible PLUS $2500 separate maternity deductible.
So those of of you with young families or want to have children in the near future, you are going to have to factor in roughly $12-15k for health expenses as 1099.
Some groups w2 health packages suck as well.
So figuring out health expenses as w2 vs 1099 cam get very complex when figuring out the entire numbers.
Sure you can write off 100% of health premiums as schedule c. Legally you write it off as s Corp. But the IRS ruled in 2008 you must add back the deducted S Corp expenses back to the W2 you pay yourself so it's not much of a savings. But 99% of accountants cheat for their clients and roll this over to the "business side".
so if you were going to compare a 250k 1099 job (w paid malpractice) in a state with no income tax but no real tax loopholes to write off (will rent, probably can only write off phone and car and part of rent and not much else). what would that be worth in a w2 w full benefits including disablility? just trying to make sure i compare apples and apples
Depends on whether the paid malpractice is claims or occurrence. Claims made is cheap (roughly $3-6k) vs occurrence ($15-30k a year)
Depends on the benefits. Some groups won't pay much if any thing for family member health benefits.
If you are single and healthy (or have wording spouse with big corporation/state government benefits) 1099 is the way to go.
W2 with hospital employed position usually comes with excellent benefits.
Just remember not all benefits are the same with a W2.
single, picture of health, no babies in the future unless they are furry retirement not an issue. trying to take the advice of the intellegensia here and just put as much $ in the bank now and pay down my student loans. can a 1099 250k job really compare to 400k w2 w loan repayment bonus, signing bonus, relocation expenses, RVU bonus, and full benefits? is the 250k gig really a better deal? really?
No way that $250k job is better than a $400k W-2 job. But money isn't the only variable, even including benefits. Need to consider location, group structure (partnership, equality, etc) hours worked, and on and on.
If all those other things are comparable, the W-2 job is better paid. But remember, no one just pays you more money 'cause they're nice guys. There's probably a LOT more work expected from you for that higher pay.
Just from what I've read on this forum it seems that the 1099 paycheck needs to be bigger than the W-2 check, (by 11% at some places.) So it would be impossible for the 250K 1099 job to pay more than the 400K W-2 job.
Is the W-2 job $400K a year plus benefits or is are the benefits included in the $400K and, it's a $400K package with a take home salary of like $250K Either way $400K a year either W-2 or 1099, I would think is a pretty solid salary for these times.
How about the same job offering both the w2 and 1099 option? They are offering 4k more on a 250k job as 1099 minus benefits. I am thinking w2. fyi I have PA for my moonlighting expert witness work I do on the side.
Under 300k. The benefits of a 1099 start to diminish and favor w2.
Again. You need to add up the nontaxable benefits of a w2 job. My academic w2 job a few years ago. I was paid around $300k w2. But man. That state employed w2 job had around 60-80k a year built in non taxable benefits (free healthcare, generous cme, generous paid days off, tuition for kids going to college, pension/plus generous matching etc)
No way a 300k 1099 can make up the w2 benefits I was receiving as a state employee.
You gotta figure out the w2 benefits and what they are worth to you. Say health care benefits are often worth 10k easily as w2 (employer contribution). But if you have a spouse with great health benefits already. Than those w2 health benefits for your job is essentially worth $0 since you have spousal health coverage.
With the passing of trumps tax law and the limitation of deducations including state/local tax (Like in NYC) to under 10k, would you say doing 1099 is now LESS worth it, since deductions have decreased significantly?
How does this professional corporation work as an anesthesiologist..? I can see how it may work for other fields that open offices but we are directly hired. If a hospital hires Dr. X for the locum position, they aren't hiring X Corp right, so can you actually count your earnings as earnings for the corp? And how would taxes work? Won't the Corp have to pay taxes, and then you as the employee will have to pay taxes as well? It's like double taxing yourself?
Read about PLLCs and S-Corps tax structure. PLLC you pay taxes at a similar rate as W-2. S-corp you pay taxes on part as dividend income (lower rate, no employment tax- save money here) and other part as ‘reasonable salary’ (similar rate as w-2). Use deductions to get taxable income down in salary portion of S-Corp (401k, IRA, HSA, malpractice, cash balance plan, gas, car, conferences, home office, etc) so most of taxes paid at dividend tax rate. More deductions available to pass throughs than to W-2s.