For a Psychiatrist, Is it better to be a W2 or 1099?

[twospadz]

If you are just a per diem psychiatrist, which is better? And what are the benefits of either? Thanks.

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[WisNeuro]

For any doctoral specialty, part of that question depends on if you have a spouse where you can easily get some insurance benefits.

 

[TexasPhysician]

If you have a good accountant and access to health insurance, 1099 is always better.

 

[psychacad]

I've done the math and 1099 comes off better almost all the time.
- no match but you can save more in pretax $ for retirement. So overall, it's better and you save more money, especially if you're looking to save above 25k per year.
- health insurance/disability/life insurance and various other benefits come off at around 12-15k max for individuals plans. That is a relatively small number out of your entire salary, and you can deduct all three, so in effect you're paying less.
- various other deductions (home office if you're doing telepsych, uber/gas if you're commuting..etc)

The real trade off here is not benefits but job security. So it comes down whether you're willing to trade off job security for more freedom (on both sides).

My experience also is that employers are hesitant to give you 1099 despite the less administrative shackles for them because it's a better deal for you. Having you committed to a job and bossing you around works much better for them. I'd go for 1099 if you can do that per diem, though I haven't found yet a place where they allow you to moonlight on 1099.

 

[dl2dp2]

- health insurance/disability/life insurance and various other benefits come off at around 12-15k max for individuals plans. That is a relatively small number out of your entire salary, and you can deduct all three, so in effect you're paying less.

Be careful with this: if you buy life/disability with pre-tax dollars, in general, the benefits are also pretax. You can do it but make sure you know what you are doing.

 

[calvnandhobbs68]

Be careful with this: if you buy life/disability with pre-tax dollars, in general, the benefits are also pretax. You can do it but make sure you know what you are doing.

Huh? How does that affect your ability to deduct this as a 1099?

 

[splik]

Huh? How does that affect your ability to deduct this as a 1099?

If you deduct it then you will have to pay taxes on any pay out. It’s much better to do post-tax disability benefits so you get the full payout

 

[Sushirolls]

Two questions typically delineate the 1099 vs W2.
1) Does the 1099 truly pay you more compared to the W2, majority of the time this is the case, but there are some places out there where the 1099 work is less than what most W2 jobs are and really beckons the question, of why?
2) What are your costs for health insurance? If you have access to a spouse or other employer based health insurance you have to use/take that, and can't buy your own and attempt to claim the tax deductions. The tax deductions are only available if you have no other option. So how much would you health insurance cost? Not sure if they are still ramping up the annual cost for older age or any known health conditions like they did in the past, if so, that may be a reason to choose an employed job with offered health insurance. If these variables aren't an issue, than simply figure out the cost.

*I prefer my own practice because of the ability to put away more money into retirement accounts, pre-tax then a comparative employed job.
*I prefer my own practice because I can buy whatever health insurance I want for my family, and its all tax deductible. Some health employers in my local area recently dinged over their employees by switching to UHC/UBH/UMR. I can pay for a higher end low out of pocket, or go with a higher end High Deductible plan. Right now I'm rocking a HDP with an HSA and loving it.
*I prefer my own practice because all my CME expenses are deductible and not limited to some arbitrary CME fund, or someone saying nope you surpassed your allotment, or we don't cover that, or you need check with so and so to get that approved.
*I prefer my own practice because in the future, if I want to, I can surpass the current maximums of 401k style retirement funds (~57K) per year and look into self directed pension plans, which can further shunt, pre-tax, far more money into retirement.

 

[calvnandhobbs68]

If you deduct it then you will have to pay taxes on any pay out. It’s much better to do post-tax disability benefits so you get the full payout

Got it thanks for clarifying, I actually didn’t know that.

 

[clausewitz2]

Not sure if they are still ramping up the annual cost for older age or any known health conditions like they did in the past, if so, that may be a reason to choose an employed job with offered health insurance. I

ACA compliant policies are allowed to set rates based on three things: age, smoking status, and zip code. Using any other variable to determine rates is illegal.

 

[Candidate2017]

If making way above the median, then 1099. Massive self-funded pension contributions, LLP/corporate structure with ability to have income above the median distributed and taxed as long term capital gains, business deductions including for benefits like whole life insurance for self and spouse.

Otherwise, W-2 for doing per diem. But why would anyone pay a per diem worker as W-2? It's cheaper and easier to cut a 1099 check than have payroll process W-2 wages and taxes, as well as not having to be liable for an employee.

 

[Stagg737]

If making way above the median, then 1099. Massive self-funded pension contributions, LLP/corporate structure with ability to have income above the median distributed and taxed as long term capital gains, business deductions including for benefits like whole life insurance for self and spouse.

Otherwise, W-2 for doing per diem. But why would anyone pay a per diem worker as W-2? It's cheaper and easier to cut a 1099 check than have payroll process W-2 wages and taxes, as well as not having to be liable for an employee.

Are you saying median for psych or national median for all households?

 

[calvnandhobbs68]

Are you saying median for psych or national median for all households?

Prob median for psych. I agree with the posters above thought that 1099 can be very advantageous. When you’re W2 you’re also basically paying a bit for convenience in not having to pay estimated taxes quarterly, hunt for your own insurance, etc. Most 1099 positions pay more than enough over comparable W2 positions to make up the difference because it’s much easier for the employer to do 1099 from both a payroll and liability perspective (they literally just pay you a check every month and do nothing in regards to taxes). If you’re even a little into financial management, 1099 is probably the way to go.

Marketplace health insurance plans actually aren’t that bad anyway and for the income levels for a physician, the difference between premiums in W2 position offerings vs difference in premiums in marketplace plans isn’t enough to care that much about.

 

[Psychferlyfe3000]

If making way above the median, then 1099. Massive self-funded pension contributions, LLP/corporate structure with ability to have income above the median distributed and taxed as long term capital gains, business deductions including for benefits like whole life insurance for self and spouse.

Otherwise, W-2 for doing per diem. But why would anyone pay a per diem worker as W-2? It's cheaper and easier to cut a 1099 check than have payroll process W-2 wages and taxes, as well as not having to be liable for an employee.

Interesting! I had not heard of this. Do you know where I can find out more about income above the median being taxed as long-term capital gains?

 

[calvnandhobbs68]

Interesting! I had not heard of this. Do you know where I can find out more about income above the median being taxed as long-term capital gains?

It's what people are talking about when they're saying to setup an S corp, it's a specific corporate structure and it's a bit complicated to get into details about it but there's plenty of info online about the benefits and drawbacks of this.

You typically do need some initial legal consulting and an ongoing accountant for this as it's much more complicated from an accounting perspective than being a sole proprietor or single member LLC. You also have to be very strict about keeping business vs personal expenses separate for accounting purposes as you're technically two separate entities for tax purposes, which is not the case with a sole prop/single member LLC.