Knowing the difference between 1099 Contractor and W2 Employment status as a Nurse Practitioner will help you make better lifestyle and work decisions.
How so? Each “position” gives you separate advantages and disadvantages – a few of which may impact how you currently live or want to live your life.
Let’s break down the pros and cons of 1099 Independent Contractor status vs W2 Employment status…
Now, keep in mind, I’m not an attorney or tax professional (so please consult the expert that you need to)
But sometimes, NP’s get confused & unsure about which type of employment they are being offered… or which one they should take.
Today, I hope to shed some light on this confusion and provide my personal perspective on:
In today’s episode, I’ll shed some light on:
- Definitions and differences between 1099 Contractor and W2 Employment status for Nurse Practitioners
- Pros & Cons of W2 Employment status
- Pros & Cons of taking the 1099 Independent Contractor route
- How each status impacts your taxes responsibility
- Status questions to ask during an interview
LINKS & RESOURCES MENTIONED TODAY:
- Click Here To Read The Full Transcription for this episode!
- Listen to Ep. #70 – Benefits & Contract Details You Need To Know as an NP!
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What is W2 Employment Status?
Being a W2 employee means that you are an official employee of the company or the organization, and that you’re subject to the typical employment laws.
In this scenario, your employer will typically withhold your payroll taxes, your income taxes, your Social Security and Medicare taxes, etc. and as a result, you will be issued a W2 slip at the end of the tax year that you will file with your taxes.
W2 status is the most common and traditional type of employment when you work as a nurse.
Benefits of W2 Employment
Now, there are definitely some pros of W2 employment that you’ll want to keep in mind as you’re kind of thinking what scenario may be best for you. The pros usually include benefits.
As an employee, if you get laid off from a W2 employee position, you usually qualify for unemployment benefits. Many W2 positions will also (and many of them are obligated under employment law) provide different types of benefits, depending on the size of the employer. Benefits such as health insurance and paid time off are just a couple of examples.
For more details about the specific benefits you should be considering and asking for in a contract or in a position as an NP, check out Episode #70.
Another pro of W2 employment is that based on your employment agreement, you will have guaranteed contractual hours. So if you sign a contract or an employee employment agreement for a full time W2 position (usually 40 hours/week), you by contract are pretty much guaranteed 40 hours per week, unless changes are made to the employment agreement.
Additionally, you are characterized as an employee under different labor laws. So that means that you have some additional protections – another pro!
Lastly, the other main pro of W2 two employment is that you don’t have to worry about withholding your own taxes; this is something that can be overlooked, that maybe we take for granted in this W2 world. This withholding means you don’t have to worry about putting aside the money that will eventually go back to the government. Whereas, if you’re not a W2, ie. If you are a contractor, you’re getting paid the gross amount, meaning the total amount that you’ve earned, and then it’s your responsibility to put those taxes aside. And at the end of the tax year, when you file your taxes, you most, in most cases will have to pay in from that money that you put aside.
Of course, do consult a tax professional about this. 😃
What is 1099 Independent Contractor status?
So the other main type of employment (I kind of hesitate to even call it employment) is 1099, also known as Independent Contractor Status.
The reason why it’s called 1099 is because that’s the tax form that you get from the person you’re contracting for.
Important things to keep in mind as a 1099…
If you are working as a 1099, or an independent contractor (I will use these terms interchangeably), you’re technically not an actual employee of the organization, but rather, you are self-employed and serving as a contractor. This means that you likely will not be eligible for any benefits, because you don’t have a typical employment agreement.
There certainly are exceptions to that rule, especially for certain organizations who may employ a lot of 1099 contractors who are NPs, but there’s certainly no obligation.
As well, I wouldn’t have any expectations of benefits… You’re not bound to any contracts or any hours guarantee. So you might be given an expected number of hours you’ll get to work, but there’s not going to be any guarantee. So if the organization all of a sudden has a reduction in force, or they don’t need you anymore, you could have your hours cut, or you could be eliminated completely. As an independent contractor, you don’t really have any sort of fallback to say, you know, “Hey, we had an agreement, you can’t tell me out of nowhere that you don’t need me anymore”.
1099 and Taxes
The company that you work for will pay you the gross amount of your pay. What that means is that there won’t be anything taken out. So if you were paid, you know, $50 an hour and you work 40 hours in that month, then your check is going to be for $2,000. Whereas if you were in a W2 situation, it would be $2,000 minus the taxes and other deductions that were withheld. This doesn’t mean that you “made more money”, but rather that you are responsible for putting aside a good chunk of that gross amount so that you have money aside for when you need to pay your taxes.
You know that I’m not a tax expert and I’m not an accountant; I have an accountant who I pay to do all this for me. So I won’t go into too much detail here… But to give you some perspective, yes, it will be really nice to see that total amount of your rate of pay, multiplied by your hours in your check. But it is really your responsibility to estimate how much you will need to be putting aside for taxes. Because depending on how much you’re making, if you’re not putting that money aside, you could be hit with a pretty significant, like five figure tax bill once a year, and that’s usually not something that people can easily swing without planning ahead.
The other thing to consider is that, in addition to your typical taxes, there’s also an additional self-employment tax that you will be subject to because you’ll technically be self-employed. For this reason, I think 1099 pay should be slightly higher than W2 hourly pay to make up for that additional responsibility that you will have as a self employed person. And, since 1099 positions usually aren’t paying you benefits, that pay increase is totally fair!
Benefits of 1099 Independent Contractor Status
The main pro that I’ve identified is schedule flexibility. Usually, as a contractor, you’re going to be more in a self schedule type of situation, as opposed to a mandated schedule.
You might be self scheduling and picking up shifts as opposed to being assigned specific times to clock in and out.
Another benefit is you can deduct certain expenses from your taxes. So, again, talk to your tax professional about this, but because you’re in the self employed status, you might be able to deduct expenses such as:
- Mileage to and from work
- Office expenses if you have an office inside your home where you’re charting (like if you’re a telehealth provider, for example.)
- Technology and/or clothing expenses such as scrubs
A third pro is typically you are not given as much supervisory oversight which can feel like a lot more freedom in your day to day NP activities.
Should you take a W2 or 1099 job?
I’ve been seeing more and more nurse practitioner positions that are 1099 opportunities. These are usually positions like home assessments, telemedicine for different startup companies, or very part time specialty coverage at private practice.
But how do you know if the job your interviewing for is a W2 position or 1099?
I think this is a great question to ask during the interview process, if it’s not abundantly clear. If it’s not stated in the job description, I think that sooner than later, it’s absolutely okay to ask, “What type of employment is this?” and they should have an answer for you.
It’s possible that if you’re working for a newer company, or a solo physician, private practice, that’s never had an NP before, they could be trying to decide what they prefer to do. In which case, it’s possible that this could be a negotiation point and could be up for discussion! In which case, I do recommend either consulting an attorney or a tax professional. This way you can weigh the specific pros and cons for your situation and also come up with negotiation points that work best in your favor so that you’re not being taken advantage of.
1099 versus W2 employment. Hot topic! Not a lot of us really get this type of education. So I hope this information will be helpful. Please let me know if you have more questions, or if there’s anything more in particular that you’d like me to explore in this topic. I’m always open to suggestions.
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