W-2 or 1099: the work arrangement
The label in a contract does not settle worker classification. For federal employment taxes, the IRS examines control and the working relationship. State and other federal rules may differ.
| Planning question | W-2 employee | 1099 contractor |
|---|---|---|
| Taxes | Employer generally withholds payroll taxes. | You generally plan and pay income and self-employment taxes. |
| Time off and benefits | Value only the benefits written into the offer. | Budget separately for time off and benefits you arrange. |
| Professional costs | Confirm reimbursement; do not assume everything is covered. | Negotiate each cost. A high rate can conceal a large budget. |
Plan for taxes before the deposit lands
Self-employment generally involves income tax and self-employment tax. Your effective hourly result is a business estimate before income tax, so take-home pay will be lower.
- Forecast annual income and expenses across all your jobs.
- Use current Form 1040-ES guidance to work out whether estimated payments are needed. Revisit the estimate when income changes.
- Discuss other withholding, state obligations and timing with your tax professional. A universal “save 30%” rule is not an individualized tax plan.
Practical habit: separate the money reserved for taxes from money available to spend. Set reminders for the deadlines that apply to you.
IRS self-employed tax center · Estimated taxes and payment guidance
Choose a structure for the practice you have
An LLC is a state-law business structure. Its federal tax treatment depends on ownership and elections; forming one does not automatically create an S corporation or tax savings.
Before filing, ask your state business office and professional counsel which entity forms are permitted for your services, what registrations apply and how the entity will contract with clients. Discuss tax treatment separately with a tax professional.
Keep entity formation, authority to practice and insurance coverage as three separate checks.
Price the costs you will carry
Ask who pays for licenses, registrations, malpractice, tail, CE, collaboration, credentialing, software and equipment. Include renewals as well as the application bill.
- Split recurring annual costs from one-time setup costs.
- Record your share of a reimbursed or shared expense. Check reimbursement limits and repayment clauses.
- Track business purpose and receipts. Whether an expense is deductible, and when, depends on the applicable tax rules. A calculator entry is not a deduction determination.
A deduction does not refund the whole purchase price. Do not buy something solely because someone calls it a write-off.
Make coverage and practice authority specific
“Malpractice included” is the start of a conversation. Ask for the policy type, limits, covered services and states, exclusions, and what happens after departure.
- For claims-made coverage, ask the insurer about tail or prior-acts arrangements, who pays, and any conditions.
- Confirm who handles claims reported after you leave and how you can obtain needed records.
- Check authority for the patient’s location and the services you provide. An employer’s reimbursement promise is not a practice authorization.
Make the back office repeatable
Keep income and expense records that support your tax reporting. The IRS allows a system suited to your business; retention depends on the record and its use.
- Keep the signed agreement, rate schedules, amendments, reimbursement approvals and insurance evidence together.
- Track service period, payable hours or units, rate, invoice number, submitted date, payment deadline and actual receipt.
- Reconcile each deposit. Document rejected units, deductions and disputes while the details are fresh.
- Use approved clinical systems for patient information. Keep it out of your offer notes and ordinary invoices unless an authorized process requires it.
Illustrative invoice check: 10 approved hours × $90 = $900 gross. Compare that with the remittance, then log any shortfall and the correction deadline.
Before you sign
Common mistakes: budgeting from promised maximum volume, ignoring charting and inbox time, assuming every professional expense is covered, and leaving exit obligations until the last shift.
Get the payment trigger, cancellation rules, invoice deadlines, restrictions, repayment obligations, notice terms and post-termination work in writing. Take unclear liability or restriction clauses to qualified counsel.