1099 is more than a number, and we’re going to talk about why.
First, do you own or manage a dental practice?
If so: 1. Do you have a separate bank account to manage your income? 2. Do you invoice the dentist for your services as an independent contractor? 3. Do you classify dental professionals who come to work in your office as independent contractors?
And second, are you an independent contractor?
If you fall into one of the two categories mentioned above, this blog is for you.
Familiarize yourself with Form 1099
It’s in the best interest of both the business owner and the independent contractor–dentist, dental hygienist, dental assistant, business assistant and receptionist–to be informed and take ownership of the facts as they relate to the employment relationship when it comes to payments and taxes. Form 1099 is an IRS tax form that is used to report payments to independent contractors, the category in which temp workers fall under.
Correctly using this form continues to be a big issue in the dentistry profession.
To cut costs, many dentists pay hygienists and dental assistants via conditions of the 1099 so they don’t have claim them as employees. For employees, the employers must withhold taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on the wages paid to an employee. If the worker is an independent contractor, employers generally do not have to comply with any of these regulations, which saves the practice time and money.
Because this issue spans across all profession, the IRS developed specific criteria to determine whether or not a person is a true independent contractor.
The following 20 questions to determine whether you have an independent contractor or an employee working for you (the responses an employer would have for an independent contractor appear in parenthesis following each question).
- Are you required to comply with instructions about the details of your job tasks? (No.)
- Does the dentist provide you with training specific to his or her practice? (No.)
- Are the services you provide integrated into the owners business operation? (No.)
- Must the services be rendered by you personally? (No.)
- Do you have the capability to hire others to help you perform the services you’re contracted to do? (Yes.)
- Is the relationship between you and the business owner a continuing relationship? (No.)
- Who sets the hours of work? (You do.)
- Are you required to devote your full time to this business? (No.)
- Do you perform the work at the place of business of the potential employer? (No.)
- Who directs the order or sequence in which you work? (You do.)
- Are you required to regularly report your progress to your employer? (No.)
- What is the method of payment — hourly, commission or by the job? (A fixed price, a not-to-exceed (NTE), and/or milestone payments are standard for independent contractors.)
- Does the client reimburse your business and/or traveling expenses? (No.)
- Who furnishes tools and materials used in providing services (You do.)
- Do you have a significant investment in facilities used to perform services? (Yes. Key here is “significant.”)
- Can you realize both a profit and a loss from your work? (Yes–very important–you must assume risk based on client satisfaction with your work.)
- Can you work for a number of dentists at the same time? (Yes.)
- Do you make your services available to the general public? (Yes. You should have business cards, stationery, invoices and a business listing in the phone book and/or online.)
- Are you subject to dismissal for reasons other than nonperformance of contract specifications? (No.)
- Can you terminate your relationship without incurring a liability for failure to complete a job? (No. If you work on a project or milestone basis, you must deliver to receive payment for your efforts.)
What independent contractors should know
While it’s true that 1099s are not required if you are paid less than $600 by the business owner in a year, you should know that $600 is not a magic number and has nothing to do with whether or not you are classified as an independent contractor.
If you are operating as an independent contractor you have to remember you are self-employed and responsible for all tax withholding and payments yourself. Keep on top of these things. Don’t set yourself up for a big surprise and caught at the end of the year with a large tax bill to pay when April 15th rolls around.
For more information on employees vs. independent contractors, visit the IRS website.
DISCLAIMER: This is not intended or offered as legal or professional advice. These materials have been prepared for educational and information purposes only. If you have questions about the status of your staff, please consult with your legal adviser or CPA.