Some Tax Basics for Medical Professionals
By Edwin P. Morrow; III, JD, LLM
Staff Writers
Medical professional should be careful overusing this technique, in the office or other business.
IRS Attacks
Why? The IRS has successfully attacked many companies that tried to classify their workers as independent contractors rather than employees. The back taxes and penalties can be fierce.
Delegation not Employment
However, many tasks may be successfully delegated to independent contractors or consultants without fear of such characterization. For example, a company does not have to withhold payroll taxes for an independent contractor, but must file a 1099-MISC whenever payments exceed $600 a year. To distinguish between the two, there are several factors to consider. In general, the more you have control over a worker, the more the worker looks like an employee. Two brief tables below note a few of the differences:
Employee:
- Works at site of employer
- Uses company tools or equipment
- Cannot delegate or hire others for job
- Method/timing of job specified/controlled
- Expenses reimbursed
- Little invested by worker
- Payment weekly, bi-weekly or monthly
- Only works for one employer
- No risk of non-payment if poor job
- Profit/bonus limited
- No advertising
- Contract states employee relationship
- Position seems permanent
- Work done is essential to business
Independent Contractor:
- Works off-site
- Uses own tools and equipment
- Can hire others or delegate
- Method/timing of job uncontrolled
- Expenses borne by worker
- More invested by worker
- Payment by the job or flat fee
- Works for several clients
- Opportunity for profit
- Advertising to general public
- Contract says independent contractor
- Position temporary
- Work done is non-core function
Multi-Factorial Analysis Needed
No single one of these factors determines status. The IRS has a 20-factor test outlined in Revenue Ruling 87-41 and discussed in Publication 1976, “Independent Contractor or Employee”. When you have a relationship that is unclear, you should consult with the IRS guidelines and publications. If your intent is to hire an independent contractor, try to make sure the relationship has more of the factors indicative of that status, checking the latest IRS publication for all relevant factors. Because of the large amounts at stake, you should err on the side of employee status if uncertain. You may wish consult a tax attorney or accountant as well, especially if you have multiple workers in a gray area. In addition, you can request that the IRS make a determination of worker classification by submitting Form SS-8, “Determination of Employee Work Status for Purposes of Federal Employment Taxes and Income Tax Withholding
Assessment
The IRS guidelines on this topic are rather lengthy. And, $600 is still the threshold amount this year unless it is royalties ($10). Non-employee compensation, rent, royalties, prizes or awards, and services are only a few of the situations giving rise to a 1099-MISC. Doctors may also find this link of additional benefit:
http://www.ehow.com/how_13664_know-issue-1099.html
Conclusion
And so, your thoughts and comments on this Medical Executive-Post are appreciated.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com or Bio: www.stpub.com/pubs/authors/MARCINKO.htm
Our Other Print Books and Related Information Sources:
Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759
Physician Financial Planning: http://www.jbpub.com/catalog/0763745790
Medical Risk Management: http://www.jbpub.com/catalog/9780763733421
Healthcare Organizations: www.HealthcareFinancials.com
Health Administration Terms: www.HealthDictionarySeries.com
Physician Advisors: www.CertifiedMedicalPlanner.com
Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest E-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.
Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos
Filed under: Accounting, Career Development, Practice Management, Taxation Tagged: | employees, ICs
Hi Ed,
The days of being an independent physician may be at an end; employees included. The New England Journal of Medicine [NEJM] just published a piece on the declining percentage of independent doctors [29 to 61 percent].
It seems that it’s increasingly becoming difficult for doctors not to be supported by a hospital or large integrated health system. And, with reimbursements declining, many doctors are opting for the relative security of a salary.
We believe that these trends and others will ensure the consolidation of doctors into larger groups and accelerate the dearth of truly independent [unbiased] physician advocates.
Best.
Dave
Dr. David Edward Marcinko; MBA, CMP™
[Publisher-in-Chief]
http://www.HealthcareFinancials.com
Chief Executive Officer
http://www.MedicalBusinessAdvisors.com
It certainly seems that recently fewer physicians are able to remain independent. For those physicians who have been able to remain viable and even flourish as independents in the current healthcare and economic environment, I have found that there are certain characteristics that they have in common:
1. The ability to keep overhead costs low.
2. The production of cash flow from a variety of sources. This may include such strategies as partnerships with multiple health systems, accepting a wide variety of insurances, offering a diverse array of services, or working in multiple geographic locations.
3. Offering unique services that are otherwise not available in the geographic area. Examples include innovative procedures, concierge medical services, house-calls, and medical spa services.
4. Making use of technology to increase efficiency.
5. Partnering with mid-level practitioners to leverage the physician’s time and talents.
These strategies, combined with a thorough business plan and a strong work ethic, can help an independent phycician to be successful.
Brian J. Knabe; MD
Did you know that the Financial Services Institute (FSI) plans on lobbying against recently re-introduced legislation in the Senate that threatens financial advisors’ “independent contractor” worker classification.
On December 15th 2009, Senator John Kerry introduced the “Taxpayer Responsibility, Accountability and Consistency Act of 2009,” which would change tax rules regarding the classification of independent contractors.
What do you all think about that?
Janice
IC Status Under Review for FAs, Too
Both houses of Congress are considering bills that could revoke the independent contractor status among financial advisors and make them employees of their affiliated firms.
http://www.fa-mag.com/fa-news/5067-independent-contractor-status-under-review-.html
Barbara
Hi Barbara,
Uncle Sam’s IRS plans on a three-year campaign to audit 6,000 businesses especially for the IC problem and related fringe benefits, reimbursed expenses and executive compensation issues.
So, doctors and FAs – be careful!
Sharon
US Supreme Court to Hear Medical Resident Tax Case
Ed, did you know a nearly 20 year dispute over whether medical residents are students or workers, for payroll tax purposes, is headed for resolution in the US Supreme Court?
The country’s highest court recently agreed to hear a case in which the Mayo Foundation and the University of Minnesota are challenging the Internal Revenue Service’s assertion that doctors in training, and the teaching hospitals that train them, must pay Social Security taxes on the residents’ stipends.
http://www.insidehighered.com/news/2010/06/02/supreme
The case, Mayo Foundation v. United States (09-837), is one in a long line in which the government and medical schools and hospitals have gone toe to toe, with hundreds of millions, if not billions, of dollars potentially at stake.
Hope Rachel Hetico; RN, MHA
[Managing Editor]
http://www.BusinessofMedicalPractice.com
IRS Settlement Offer for Classification of Employees as Contractors
IRS has launched a new voluntary compliance program that allows employers to prospectively reclassify-as employees-those workers they have erroneously treated as independent contractors.
The program carries generous settlement terms and provides audit relief for previous years.
http://investment-fiduciary.com/2011/10/03/irs-settlement-offer-for-classification-of-employees-as-contractors/
Michael
Company Plans $300M Spending Spree on Medical Practices
Anesthesiologists and subspecialty pediatricians who own their practices but want to sell may find an interested buyer in a practice management company. Mednax, based in Fort Lauderdale, Fla., spent $161.4 million buying up 10 of these kinds of medical practices in 2011 but expects to shell out about $300 million in 2012.
One-third of this money will be invested in practices to become part of the Pediatrix Medical Group division. Two-thirds will go to practices that will merge into the American Anesthesiology division. Mednax has practices in 33 states.
http://www.ama-assn.org/amednews/2012/02/20/bisd0221.htm
I see shades of the PPMC fiasco of the late 1990s; how about you?
Paul