Thanks for all the great sound advice. I am a MSK radiology fellow looking at two offers. One is a independent contractor and one as an employee. I am having a hard time comparing apples with oranges!
This is a common question and one which nearly every doctor wrestles with at some point during her career. For tax purposes, an independent contractor is self-employed and “paid on a 1099.” An employee is paid on a W-2, just like a resident or fellow.
Don’t Choose A Job Based On This
First of all, I would recommend that you don’t make this a huge factor in your job hunt. The after-tax, after-benefit difference between the two offers is unlikely to be very high. Besides, at the level of income at which an attending, fellowship-trained radiologist is paid, a difference of a few thousand dollars isn’t going to affect your happiness one way or the other. I would place far more importance on other factors, such as how much you like the people you’ll be working with, the schedule, and the location of the job. It’s like choosing a residency based on the salary- just don’t do it.
An Independent Contractor Should Be Paid More
As a general rule, you should have a higher salary as an independent contractor than as an employee. How much higher? Enough to cover the loss of benefits and the additional payroll taxes. So add up the monetary value of all the benefits available at the employee job and add it to the salary. Include any 401K match, dental insurance premiums, health insurance premiums, CME stipend, and moving allowance. Then add up the cost of the employer paid payroll taxes (7.65% of income up to $113,700 in salary and 1.45% on income above that limit) and add that to the salary. Now you can compare them fairly directly. At a typical physician income, I’d expect an employee salary to be $20-30K less than an independent contractor salary.
Some Benefits For Independent Contractors
There are some additional benefits of being an independent contractor. Many employee retirement plans have limited contributions or high expenses. It’s pretty easy to do a Solo 401K or SEP-IRA as an independent contractor and have a $51K contribution limit and rock-bottom expenses. You’ll also be able to deduct a few more items on your taxes. Some of these deductions can be quite significant, while others are nearly meaningless. For example, the employer portion of the payroll taxes is tax-deductible. On $300K of income, that would save you something like $4300 in taxes. You could also deduct anything you can justify as a business expense, such as CME costs, scrubs, stethoscope, pager, cell phone, accountant fees etc. That might save you another $1-2000 per year in taxes. Everyone will be a little different in this respect of course.
What do you think? Have you had to choose between an employee position and a contractor position? Were there any other factors you considered? Comment below!