A 1099? It's Jon from Financial MD, welcome to today's Didactic Minute.
Now a lot of you physicians out there are thinking about 1099 work or already in 1099 work. It's basically an independent contractor. So another way to say that would be self-employed, which means you are not paid a flat payroll every two weeks, payment with taxes withheld, and possible benefits. It's just a very different thing. It might be a regular payment of a set amount every 2 weeks or month or whatever but sometimes it's hourly. This happens a lot with ER physicians, psychiatrists I see, and a lot of other specialties where they're contractors. They sign a contract for a certain period of time at a certain rate but they don't necessarily dictate when and how you have to work – you kind of do it. And a lot of physicians will establish an LLC. A lot of times that can be a good idea.
But what are the pros and cons of a 1099 because at the end of the day, that's what matters. Well, 1099 essentially you are a business; a W-2 employee you are not. Those are two different ways of getting paid. As a business – as a 1099 – one of the big benefits is you can write off things. You can deduct things from your taxes as a business expense. That means you pay less taxes. There's less income that's being taxed. If you made $100,000 and you had $20,000 that year in expenses like gas and mileage and travel and food and all those other kinds of business expenses, then you're only taxed on $80,000. As an employee, a W-2 salary, whatever, you can't deduct those kinds of things. So that's the big major difference.
Now one of the cons of being a 1099 is you got to take care of all your own benefits. You have to pay your half of Social Security tax which is about 7.65 percent. Usually, the employer takes care of that. They split it in half. It's called FICA. You pay half; the employer pays half when you're a W-2 employee. As a 1099, self-employed, independent contractor, you're paying the whole 15.3 percent. So, that can make sense if tax deductions and business expenses outweigh that negative, but you got to run the numbers and see. Now sometimes you don't have an option; it's just the way it is. That's the job you get. But sometimes it can pay more and you can end up making more. So, it's a good question to discuss with your financial planner, with your CPA or tax planner; but the other thing to note is you've got to make sure you get your own malpractice insurance in that case a lot of times. Sometimes, the hospital, the clinic, or whatever, will provide it but just something to be aware of.
So, if you've got more questions on that, you've got our contact info. Send us info@financialmd.com. Visit our website – financialmd.com. Comment below on stuff you've run into or issues or questions or things you've got. That's what the comments are for. We love to see it cracking.
So, it's Jon from Financial MD, we'll see you next time.
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