Recruiting physicians can be tough whether you are a healthcare recruiter, a physician responsible for building your team, or an administrator. When the conversation turns to benefits and pay for an independent contractor position (aka 1099), things can get complicated. Sometimes this as a difficult conversation to navigate, but you can make the financial flexibility of an independent contractor position a top selling point of the job. See below for the top 3 financial benefits.
1) Dramatically Reduce the Bill to Uncle Sam
Independent contractor providers have the unique ability to drastically reduce their tax bill. Some of the bigger deductions include retirement contributions (in 2019, providers can contribute up to $56,000* in a tax-deductible retirement plan), business expenses, the QBI deduction introduced with tax reform, and health insurance premiums (see below). When you take all these strategies into consideration, a provider can easily deduct $150,000 from their taxable income. In a 24% tax bracket, that means saving $36,000 in taxes in a single year. See an example here.
2) Accelerate Retirement Savings & Financial Independence
As mentioned above, an independent contractor provider can save up to $56,000* in a tax-deductible retirement plan (vs. $19,000 as a w2 employee). If the independent contractor provider chooses to hire a spouse, an additional $24,000 can be saved. If that’s still not enough and/or the provider is looking to save even more in taxes, a Defined Benefit Plan can be deployed (aka “pension plan”). All of these strategies are unique to the independent contractor (1099) status.
3) Design a Portable Benefits Package
When providers are in an IC/1099 role, they get to create their own custom insurance package rather than relying on a “set in stone” group benefits package. Working with a broker is a good idea as it allows the provider the ability to see various options across carriers for items like health, disability, life and long-term care coverage. The provider has flexibility in choosing how much coverage fits their needs and budget. Here are some of the other benefits of designing a portable benefits package:
- Health plans can be tailored, and the premiums are 100% tax-deductible. If a high-deductible plan is selected, a HSA account can be used. HSA accounts offer triple tax benefits by not being subject to federal income taxes, earning interest tax free, and the funds withdrawn are tax free (as long as they are used for qualifying health, dental and vision expenses). The funds also roll over year-to-year.
- For disability insurance, providers can secure a permanent plan, meaning if the provider were to change jobs in the future, he/she can keep the insurance coverage when making the job change. This is important because as providers get older, disability coverage premiums dramatically increase. Securing disability coverage early in one’s career keeps the cost down. Providers should also be aware of discounts available for disability coverage. Depending on the employer, here at FDI we can secure discounts that no other brokers have access to. For more tips on how to secure the best possible disability policy, go here.
- For life insurance, premiums are often less expensive for an individual life plan than a group policy. Additionally, one has the flexibility to choose a larger benefit if necessary and can consider whether a term or permanent policy best fits their needs.
Looking for material to share with your providers that outlines the financial benefits of being an independent contractor? Email us for a one-pager: firstname.lastname@example.org.
*$62,000 for those over the age of 50