Navigating Your Therapist Career: Understanding the 1099 vs. W-2 Dilemma
Today, I want to tackle a question that comes up a lot in therapist groups: should you opt for a 1099 or a W-2 position, or start your own practice?
Let's break it down:
Understanding the Basics: 1099 vs. W-2
1099 Contractor:
Did you know that as a 1099 contractor, you are considered self-employed? You are automatically a business owner! You are responsible for managing the entirety of employment taxes, insurance, and other business expenses.
In 2024, if you work for yourself in Texas, you'll need to figure out how much tax you owe. You won't have an employer taking taxes out of your paycheck, so you have to pay Texas self-employment tax. This tax is 15.3% of your income, with 12.4% for Social Security and 2.9% for Medicare. The tax is based on how much money you make. For Social Security, the first $137,000 of your earnings is used to calculate the tax. For Medicare, it's applied to all your earnings.
You need to make quarterly estimated tax payments to avoid IRS penalties. The dates are April 15th, June 15th, September 15th, and January 15th. You can use Form 1040-ES to pay this tax. It's important to keep track of your earnings and any expenses you can deduct to lower your tax bill. Trust me- I’ve missed that deadline before and the penalties hurt, Ouch!
As of March 11, 2024, new legislation has come into effect in the U.S., impacting the classification of workers as employees or independent contractors. This legislation is designed to further clarify the distinction between the two categories, with the goal of more fair treatment for workers.
Key changes include stricter criteria for classifying workers as independent contractors, including factors such as:
The level of control exerted by the employer over the worker.
Whether the work performed is integral to the employer's business.
The degree of independence and autonomy enjoyed by the worker.
Therapists and other healthcare professionals should stay informed about these legislative changes to ensure compliance with employment laws and regulations. Passing the test to prove that a therapist is actually a 1099 in a practice will be much less likely based on these changes, as generally these are key roles and integral to the success of the business.
If contracting as a 1099, you should have complete control over your schedule and availability. However, you're also responsible for marketing yourself and maintaining a steady stream of clients. This could create some irregularity in income. You will need to provide all your own materials and resources needed to complete your work.
W-2 Employee:
As a W-2 employee, you work for an employer who pays the employer half of employment taxes, manages benefits, and provides other administrative resources. You will need to work with your employer to develop your scheduled and client load, based on the employer’s needs and job expectations. You may be eligible to receive benefits such as health insurance, retirement plans, and paid time off. Income might be more stable and predictable.
Pros and Cons of Each Option:
Starting Your Own Practice (1099):
Pros:
Ultimate autonomy and control over your practice.
Flexibility to set your schedule and rates.
Possibility for higher earning potential in the long run.
Cons:
Greater administrative burden, including managing taxes, billing, sales, and marketing.
Irregular income and potential financial instability, especially in the early stages.
Limited access to benefits such as health insurance and retirement plans.
More isolation and less support built in.
Working as a Contractor for Someone Else (1099):
Pros:
Independence and flexibility similar to starting your own practice.
Less administrative burden compared to running your own practice.
Opportunity to focus solely on client care without worrying about business operations.
Cons:
Lack of benefits typically associated with traditional employment.
Income may still be irregular depending on client demand.
Support and collaboration vary.
Working as an Employee (W-2):
Pros:
Stable income and access to benefits such as health insurance and retirement plans.
Less administrative hassle, as your employer handles taxes and other paperwork.
Potential for professional development opportunities and mentorship within the organization.
Cons:
Less control over your practice.
Less flexibility in setting your schedule and rates.
Must adhere to organizational policies and procedures.
What to Consider When Weighing Practice Opportunities:
When you're considering different opportunities, whether it's a job, a business, or something else, there are several factors you should think about to make the best decision for yourself. Here are some key factors to consider:
Your Goals: What are your short-term and long-term goals? Consider how each opportunity aligns with what you want to achieve personally and professionally.
Skills and Strengths: Assess your skills, strengths, and interests. Look for opportunities that allow you to leverage these abilities and develop new ones.
Compensation and Benefits: Evaluate the financial aspects of each opportunity, including salary, bonuses, benefits (such as health insurance, retirement plans, etc.), paid time off, and any other perks offered.
Consider things unique to the therapy world such as payment for no shows or late cancellations, if supervision is covered, and whether payment is contingent on the fees being collected from insurance or the client. Consider the time requirements for completing administrative tasks either for your own business or when working for someone else
Work-Life Balance: Consider how the opportunity will impact your work-life balance. Look at factors such as workload, schedule flexibility, commute time, and potential for overtime or on-call responsibilities.
Ask questions about the expected number of scheduled and held sessions and total time commitment to the role. Consider how many hours you may need to devote to business tasks such as marketing, billing, or administration in each role.
Company Culture and Values: Assess the company culture and values of the organization offering the opportunity. Determine if it aligns with your own values and if you feel comfortable working in that environment.
Opportunity for Growth: Evaluate the potential for growth and advancement within the opportunity. Consider if there are opportunities for learning, skill development, and career progression.
Location: Take into account the location of the opportunity and how it aligns with your preferences and lifestyle. Consider factors such as proximity to family and friends, cost of living, and quality of life.
Job Security and Stability: Assess the stability and security of the opportunity. Consider factors such as the organization's financial health, longevity of the organization, industry trends, and potential for layoffs or job loss.
Risks and Challenges: Identify any potential risks or challenges associated with each opportunity. Consider factors such as competition, market conditions, and potential obstacles you may face.
Feedback and Reviews: Seek feedback from others who have experience with similar opportunities or organizations. Research reviews and testimonials to gather insights into the reputation and track record of the opportunity.
By carefully considering these factors and weighing the pros and cons of each opportunity, you can make a well-informed decision that aligns with your goals, values, and priorities. Remember to trust your instincts and choose the option that feels right for you.
Here is a little “take home” calculator to use in comparing your options and opportunities.