Tax time is right around the corner. For many in the healthcare industry, it’s just business as usual. You already have your taxes withheld, per your W-4 status, from the form you filled out when you were hired. But for some caregivers, depending on your employer, tax time might be different this year.
As a nurse, you work hard for every penny you earn. When you choose to work with a staffing agency, you’re still working for a healthcare facility, and you’re providing the utmost in care for your patients. But with some staffing agencies, you’re considered an independent contractor. When tax time rolls around, you may be scrambling to figure out how to file correctly. If you receive a 1099 form instead of a W-2, you will need to file as self-employed.
When you work for a healthcare facility, and certain staffing agencies, taxes are withheld from your regular paycheck, so, technically, you’re already paying your taxes. When you receive a 1099, no taxes have been deducted from your pay. That means you will most likely need to pay your state and federal income taxes on your own. If you were not prepared for this, it could end up being one giant pain-in the pocket book.
Why Staffing Agencies Don’t Take Out Taxes
Many staffing agencies will misclassify nurses as independent contractors in an attempt to save the agency money. If the agency shows you as being self-employed, or an independent contractor, then they don’t have to bother with filing Social Security, workers compensation, FICA, or federal, state or local taxes. That is your responsibility when tax time arrives.
If You Are Classified as 1099
As confusing as income taxes are normally, they can be even more confusing when you suddenly receive a 1099 in the mail, instead of the W-2 you were expecting. The taxes are initially higher with a 1099. There are ways to offset the amount you owe so you don’t get in trouble with the IRS. But it’s likely, if you weren’t expecting to file as an independent contractor/self employed caregiver, you didn’t save the receipts you need, nor keep track of your mileage, nor any of the other itemized deductions which would offset your debt to the government.
In addition to the usual 15-35 percent, depending on your filing status (married filing jointly, single, etc.), you will also have to come up with an additional 15% or more to cover your self employment taxes. This can take a big chunk out of your pocket if you aren’t prepared.
How can You Protect Yourself?
Knowledge is key when it comes to protecting yourself from owing the IRS money you aren’t prepared to pay. Before you start working for a medical staffing agency, make sure they don’t classify-or misclassify-healthcare providers and caregivers as independent contractors or self employed. Find a staffing agency that gives you a W-2 status and withdraws taxes from your paycheck.
If you’re unsure of your status with your staffing agency, take a look at your paycheck. If you’re making an hourly wage, and you’re taking home all of that wage, you’re likely classified as self-employed/independent contractor. If this is the case, begin making plans to set aside at least 35% from each of your paychecks in anticipation of owing the government.
Don’t Panic, But Change Your Agency
If you find out you are in fact working for an agency that declares you are self-employed, start looking for an agency that does give you W-2 status. If you find yourself in a pickle with the IRS because you were unaware of your 1099 status, you can set up a payment plan with the government-both federal and state.
Of course, as with any loan, when you set up a payback plan with the IRS, you will be charged fees and a percentage. Your percentage can rise each month, depending on your plan, and you cannot miss a payment. The IRS is far from forgiving, so you’d best stay current on the ‘loan’. This is a good time to hire a professional to prepare your taxes. He or she can advise you and provide assistance in dealing with the IRS.
As a leading healthcare staffing agency here in Georgia, BOS Medical Staffing classifies all of our caregivers as W2 employees and acts as the Employer of Record.