5 Things to Know Before Accepting a 1099 NP Position

I've held various positions, both as a W-2 employee and a 1099 independent contractor throughout my years as a nurse practitioner. My PRN side jobs have been accompanied by employment agreements as a contracted worker while my more permanent nurse practitioner positions have been held on W-2 status. 

As I work with nurse practitioners in the Career Advisor Program, I often notice employers advertising one type of position over another. Some employers even offer to pay as much a $20/hour more to nurse practitioners working as 1099 independent contractors. This seems like a pretty good deal, but it is all it's cracked up to be? Here are a few things to know before accepting a nurse practitioner job as a 1099 independent contractor. 

1. The IRS will see you differently

In the simplest of terms, nurse practitioners that are 1099 employees are "independent contractors". They receive a different tax form than that which accompanies more traditional W-2 employment status and are not technically employees of the company for which they work. If you are a nurse practitioner practicing as a W-2 employee, payroll taxes and social security taxes are automatically deducted from your paycheck. If you are a 1099 contractor, they are not. 

2. You'll need your piggy bank handy

If you accept a 1099 nurse practitioner position, the taxes you owe will not be deducted from your paycheck. Come pay period, you'll be receiving a fat wad of cash (theoretically speaking, anyway). Before you hit the mall, don't forget that while taxes weren't deducted directly from your paycheck you still owe Uncle Sam his fair share. 1099 contractors must pay income tax, self employment tax, social security tax, and medicare taxes all on their own. In fact, 1099 nurse practitioners pay twice as much for social security and medicare taxes compared to their W-2 counterparts as half of these expenses are paid by the employer in a traditional employment scenario. Setting aside cash for paying taxes, a significant portion of your income, is key so you don't find yourself in the red come tax season.

3. You can demand a major raise

By hiring you, the nurse practitioner, as an independent contractor rather than a W-2 employee, your employer shifts the tax burden off of the company and onto you personally. So, you should expect to be paid more. A lot more. In general, you should ask to be paid 10% to 20% more as a 1099 contractor. If your salary expectation would typically be $100,000 for your NP next position, negotiate for $120,000 if you are asked to accept the position as an independent contractor. 

4. Don't expect benefits

In most cases, nurse practitioners hired as 1099 contractors aren't offered benefits. This means, that in this position you won't be offered paid time off, health insurance benefits, a retirement plan, or disability insurance. In most cases an employer will still offer to pay your medical malpractice insurance costs, but you must double and triple check that liability coverage will be provided. Consider the cost of insuring yourself and your family as well as planning for retirement when you negotiate your pay as an independently contracted nurse practitioner. 

5. You'll need the services of a tax professional

If you earn a significant amount of income working as an independently contracted nurse practitioner, hiring an accountant to help out with your taxes is the way to go. There are a few deductions you may be able to claim as a 1099 employee, such as deducting all or part of the amount you pay in health insurance premiums. Making sure you're covered when it comes to paying state and federal governments what you owe can get complicated quickly. Enlisting the services of an accountant will not only save you a major headache, it may even pay for itself by helping you identify loopholes in applicable tax code. 

Do you consider tax status when evaluating nurse practitioner employment opportunities?

 

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Comments

Anybody who has owned a successful business and fully understands the tax codes stays far away from W2 income as much as possible. The IRS is set up for entrepreneurship and businesses and the loopholes are immense. What do you think organizations do when they are holding your taxes out of your check, sitting it in some form of income producing account. They don't pay your taxes every pay period, they pay them quarterly which leaves time to add up quite a bit. Plus as Ind contract you can write off almost everything! So what if you have to pay a good above bar CPA several hundred dollars a year, you'll save thousands in taxes!

Adam Schendel

Hi Tiffany, 

You do not need an LLC to work as a 1099 employee. 

Erin Tolbert

I am taking a position as a contract employee. Do I need to set up a PLLC? If so, how will I name that company? Thank you

Tiffany Richey

I am still a little confused on the subject, please someone help, I got offered to work as a 1099 employee and i accepted knowing very little of it.... If I get paid less than 10,000 a year, will i be paying it almost all back to uncle sam?

samantha jones

Thank you for the great information! You're very much right about the complicated side of being an independent contractor, however, if structured properly, a 1099 contractor will pay less in taxes than an equally compensated w-2 employee.

One of the biggest way to save taxes is through forming an LLC with an S election. If you do not have an S election in place or you're a sole proprietor (no entity), you are looking at paying the self-employment tax on the entire amount. So, if you're earning $120K, the self-employment tax is going to be $120K x 15.3% = $18,360. When you have an S corporation, you're able to shield a very large portion of your income from the self-employment taxes, which can easily cut your self-employment taxes in half.

Darina Koltsova