1099 Vs W2 for Associate Dentists

1099 Vs W2 for Associate Dentists

In an earlier post I mentioned that being a W2 employee will save you a lot of headache and avoiding 1099 jobs may be easier. While this still may be true, I didn’t highlight the positives of being a 1099 associate dentist. In other words, I’m revisiting this topic to emphasize the pros of being a 1099 associate dentist.

As a quick refresher, a W2 employee is what we are all used to. The classic clock in/ clock out type of position that comes with all of the extra benefits if your employer offers it. Benefits being health insurance, retirement, etc.

As a 1099 employee, you are hired on as an independent contractor. This means you sign a W9 form when you’re hired on and when it comes to doing your taxes, you will receive a 1099 instead of a classic W2. In part, you wont get any benefits from your employer that you would normally get with a W2 position. HOWEVER, since you’re an independent contractor, you will have the ability to set up health insurance, retirement, among other things for yourself. I’ll be sure to explain this in a different post.

So why in the heck would we ever go for a 1099 position as an associate dentist? The simple and quick answer: taxes.

Side Note
I know this word is very scary and can turn off a lot of people but hey, if you ever want to be a private practice owner or save enough for retirement, you will have to start learning about how your paycheck is taxed. Believe me, this word scared me too, but because I knew I had to start planning for my future, I scoured through youtube, podcasts, and various books to learn what I know today. It's only because I now know about taxes, we changed my position to a 1099 position as well! Either way, I digress, let's go back into why it's beneficial to be a 1099 associate dentist. 

As a W2 employee, your entire income is subject to a federal tax commonly known as FICA. This is that tax everyone always gets mad about when they look at their paychecks. Yup! That tax we look at and say, “taxes took all of my money!”. What people usually don’t know is that FICA taxes pay into your future Social Security and Medicare fund. In total, your paycheck gets subject to 15.3%. That is, 15.3% of your earnings gets deducted every paycheck to put towards social security and medicare.

As a 1099 employee, you’re still subject to FICA taxes, but, you get to choose how much of your salary is subject to that tax. The benefit here is that whatever salary isn’t taxed can be spent on continuing education, paying for disability/liability insurance, and other tax write offs. In doing so, you also lower your taxable income (the amount of your salary that would be subject to FICA Tax). For example, say your 1099 job pays you $100K a year. You can pay yourself $75K per year and have the other $25K set aside to pay towards all of those tax write offs I mentioned above. If you were a W2 employee, you would get taxed on the full $100K and not get any tax write offs when spending money on continuing education.

Essentially, you’re able to offset a portion of your paycheck prior to taxes. This is money you would spend anyways on various things that require you to be an associate dentist. Only now, you’re lowering your taxable income, paying for things that you need as a dentist prior to taxes, and also setting yourself up for your future! There are definitely other pros to being a 1099 associate dentist, but to get into all the details of 1099, it will require another blog post. I’ll be sure to explain more later.