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Accounting Issues for Doctors

By Edwin P. Morrow; III, JD, LLM

Staff Writers

Any business, like a medical practice with employees, has to concern itself with payroll taxes.  This includes any C or S Corporation with a sole owner / employee. 

Payroll Taxes

Payroll taxes include: 1) income tax withholding for any employee for federal, state and local taxes; 2) the employer portion of federal social security and Medicare taxes (also called OASDI – old age, survivors and disability insurance); 3) the employee portion of federal social security and Medicare taxes; 4) state and federal unemployment tax [See IRS Publication 15, Employer’s Tax Guide].

Non-Employees

A non-employee business or medical practice owner (which may be a partner in a tax partnership) must pay the equivalent of these taxes, called Self-Employment Taxes, in lieu of the above taxes  IRC § 1401. These include a social security tax of 12.4% on earned income up to $106,800 (2009 number increases annually) and Medicare taxes of 2.9%. Instead of income tax withholding, the owner doctor pays Estimated Taxes on a quarterly basis. A non-employee owner is unlikely to be required to pay unemployment taxes.

Impacting Issues 

Both the employer and the employee must pay a social security tax of 6.2% of wages up to $106,800, and a Medicare tax of 1.45% of all wages. This totals 15.3% of the first $106,800, and 2.9% of all wages above that. You will notice that when combined, the employee and employer tax rates equal the self-employment tax rates. 

Assessment

Although tax planners often only discuss income tax planning, payroll taxes may sometimes be greater than the corporate income tax (starting at 15%) or individual income tax (which may be as low as 0, 10 or 15%), and should be considered just as important in planning to avoid excessive taxation.  Unlike income taxes, there is no standard deduction, exemption or delayed starting point for these taxes. The tax starts on the first dollar.  Although there are not nearly as many tax “loopholes” with payroll taxes as with income taxes, impacting issues should be noted.

Conclusion

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Filed under: Accounting, Taxation | Tagged: Accounting, payroll taxes | 1 Comment »