Why It Matters If You’re an Independent Contractor or an Employee

Why It Matters If You’re an Independent Contractor or an Employee

One of the best perks of being a nurse is the flexibility that can come with the job. Throughout their careers and as their own personal needs change, nurses are able to change their schedules more easily than most other professions. With positions as a per diem nurse, an on-call nurse, a part timer, or a full timer, there is often a way for a nurse to fit his or her hours around lifestyle and financial needs.

But with the flexibility comes other responsibilities. Some part-time jobs and jobs that are purely contractual offer nurses the choice to work as an independent contractor instead of an employee. There are bonuses and drawbacks to both situations.

What is the difference between a nursing employee and one that is an independent contractor? The biggest reason you want to know the difference is really because the IRS has strict classifications for one or another. Based on your classification, you will have different tax process and vastly different tax responsibilities.

Independent contractors are in control of their own schedules and their own work. As an independent contractor, you might bring your own tools and equipment to the job, and you will form your own schedule. Basically, an independent contractor is free to make his or her own rules. Because of that kind of freedom, independent contract positions for nurses aren’t typical unless they’re strictly on an as-needed basis and the nurses are self-employed.

Because the very nature of nursing is based on strict standardized procedures, the IRS and almost all healthcare settings consider nurses employees, not independent contractors. An employee is generally considered to be a nurse who reports to work at the time and day specified, does the work according to the organization’s wishes or rules (for example, you must follow certain procedures in order), and the vast majority of nurses fall into this category. Even if you work for an agency, you should still be considered an employee of the agency and not an independent contractor for the agency.

Why does it matter if you are classified correctly?

As tax day nears, more people start to think about their finances and being accurate really counts. The IRS looks closely at independent contractors, especially those in the medical fields, because they classify most of them as employees (your employer should be withholding your taxes properly) rather than independent contractors (you are considered self employed and must pay your own taxes, including both portions of the FICA taxes and a self-employment tax, correctly and on time).

If you are audited and found to be in noncompliance because your classification is incorrect, you could be subject to some hefty penalties and fees, not to mention owing any back taxes that weren’t paid properly.

The freedom that comes with independent contract work is nice, but independent contractors pay more money in taxes and are responsible for filing and paying estimated quarterly taxes. They also don’t receive employee benefits like health insurance, paid time off, or workers’ compensation coverage.

How can you tell your classification? An employer is required to give you a Form W-4 so you can select your withholding amounts upon being hired. Your pay stub will also reveal what taxes were being withheld and how much. In the beginning of the year, your employer will send you a Form W-2 to file your personal income taxes. If you haven’t received these (or if you’ve been told to just file a 1099 self employment tax form), check with your employer to make sure your classification is correct.

In the end, you are responsible for the taxes, so you want to make sure you protect yourself.



Making Tax Season a Little Easier

Making Tax Season a Little Easier

It’s the time of year that makes even the most organized people cringe – tax time. Unless you are an accountant who knows all the ins and outs of taxes, this time of year can be confusing. But a combination of getting things done early and finding some hidden money might make the process a little less troublesome!

Be on Time

Really, filing on time is one of the most important things you can do at tax time (well, that and being accurate!). You don’t want to have the hassle of filing for an extension and then feeling forever behind the eight ball. And if something looks wrong, you have time to fix it without a looming deadline. Set aside blocks of time to make it easier – one block for gathering your papers, one for a first run at it, a dedicated time for focused proofreading, and then the final organizing before it gets filed or sent. Even if you have someone else do it for you, you still have to take the time to gather all the papers and records you need. The earlier you get that done, the better.

Find the Money

If you have dependents like children at home or even an elderly parent you care for, you might be entitled to take advantage of the child and dependent tax credit. The credit can amount to thousands of dollars of tax savings. The credit includes traditional day care and childcare, but also can even cover summer day camps as long as it is something that is caring for your kids to give you time to work. If your employer offers a flexible spending account and you are signed up, you can also use that to get a tax credit if you used it to pay for the care or expenses of a dependent.

Charity Credits

Charity credits can raise a red flag with the IRS, but if you keep meticulous records, you shouldn’t have a problem if you are ever audited. You can deduct expenses for things like donations you make to the Salvation Army or other legitimate charitable organizations. So you think that 5-year-old blazer isn’t worth mentioning? If you donate a large pile of good-quality clothes, a few bags of kids’ books and toys, and various household goods throughout the year, your donations could easily add up to hundreds of dollars in charitable deductions you can claim. To make sure you are covered, keep very specific records. List every item you donated, take a photo of what you donated, and don’t forget to get a receipt (you have to have this). Attach all your photos and documents and keep them in a file marked “donations.”

Make Sure Everything Is Legal

If you employ a housekeeper, gardener, or even a sitter and pay him or her $1900 or more in a year, you are most likely, in the eyes of the IRS, a household employer. If so, you need to be paying the taxes of your employee and if you haven’t done that yet, it’s not too late to get going. You should probably consult with an accountant familiar with both tax and labor laws to make sure it is all done by the book. If you choose not to, you are taking a risk that carries hefty fines and penalties.

When you are ready, file your return and give yourself a pat on the back for another (big) chore completed.