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.