For the past four years, I have been doing fill-in hygiene in my area. The reason I have chosen to work like this is because I have small children, and I want the flexibility to work when it is convenient for my family and me.
My purpose for writing is that I’m confused about the tax situation for someone like me. Some doctors take taxes out of my pay and some do not. Some will ask me if I want taxes withheld, and I really don’t know how to answer. I like receiving the larger (non-taxed) amount, but I know that not having taxes withheld could pinch my husband and me at tax time.
What is the correct protocol? Should I insist on having taxes withheld, or should I not worry about it either way?
Needing Answers in Nashville
I sure can identify with your dilemma, because for a number of years when my children were young, I did fill-in hygiene. It allowed me to work when my schedule permitted and still take care of my home and family. My husband was the primary breadwinner for our family, and my temping gave us some discretionary money. Some doctors would automatically take out taxes, some would ask me if I preferred they take out taxes, and some would just pay me the gross amount with no taxes withheld. I never knew which way was the “right” way, but my husband used to say that all the untaxed money I received was hurting us at tax time. I can remember having as many as 10 W-2 forms from various doctors at tax time.
As for tax burdens, many employers of temporary hygienists would prefer to withhold no taxes, because this saves them paying the employer’s portion of FICA and Medicare, which amounts to 7.65 percent of wages. (The total is 15.3 percent, half of which is paid by the employee.) However, the whole idea of whether to withhold taxes or not should be based on the employment status of the person providing the service. I remember one doctor telling me that he didn’t need to withhold taxes, because I was considered an “independent contractor.” Since I was not a regular employee in his office, I figured he was correct. Actually, he was incorrect.
In an effort to give you concise information regarding this, I consulted my CPA, Stephen Lain of Lain Asset Management and Planning in High Point, N.C. He steered me toward some IRS publications that provided the necessary information we need to answer your question (Internal Revenue Service Publication 15-A, Revised Jan. 2004).
First of all, the IRS stipulates that everyone falls under one of four possible business relationships regarding employment status:
• An independent contractor
• A common-law employee
• A statutory employee
• A statutory nonemployee
The general rule is that an individual is an independent contractor if the employer has the right to control or direct only the result of the work and not the means and methods of accomplishing the result. Under common-law rules, anyone who performs services for an employer is an employee if the employer can control what will be done and how it will be done. This is so even when the employee is given freedom of action. What matters is that the employer has the right to control the details of how the services are performed.
To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. In any employee/independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered.
Facts that provide evidence of the degree of control and independence fall into three categories:
• Behavioral control
• Financial control
• The type of relationship of the parties
These facts are discussed in the related sidebar.
Now, if you work with a staffing agency, you are considered a “leased employee” and fall under different guidelines. The staffing agency has the right to control and direct the worker’s services for the subscriber, including the right to discharge or reassign the worker. The staffing agency hires the workers, controls the payment of their wages, provides them with unemployment insurance and other benefits, and is the employer for employment tax purposes. The doctor pays the staffing agency directly.
Although there are some aspects of independent contractor status that would relate to dental hygienists doing temporary work, the preponderance of criteria shows that temporary dental hygienists are employees, and as such, should be subjected to all regular withholding taxes.
According to my ADHA sources, there are 40 states that allow some form of general supervision, which generally means the hygienist still works under the doctor’s supervision but can see patients under certain conditions when the doctor is not physically present. Other states have direct supervision, which means the hygienist cannot perform services except in the presence of a dentist. There is only one state, Colorado, where hygienists can truly work independently (therefore be an independent contractor). Another state, New Mexico, has a collaborative arrangement, in which dental hygienists may treat patients according to a protocol with a collaborative dentist or may obtain a diagnosis from a dentist based on a hygienist report to a dentist. Hygienists may own or manage a dental hygiene practice in any setting in New Mexico and must refer patients for a dental exam yearly.
One idea is that you could file a quarterly report with the IRS and pay your own taxes. You would be considered a “sole proprietor” and would bear the full brunt of the tax burden (15.3 percent vs. 7.65 percent if the employer withheld taxes initially). Fiscally, it makes more sense to have the employer withhold taxes.
One other thought I want to share: If a doctor does not withhold taxes, he or she must furnish you a 1099 form at the end of the year if the amount you were paid was in excess of $600. This form is used to report payments to nonemployees. If the employer does not report payments to you, he or she could be held liable for taxes and penalties later.
Consequences of treating an employee as an independent contractor can occur as a result of misclassifying an employee. If an employer classifies an employee as an independent contractor and has no reasonable basis for doing so, the employer may be held liable for employment taxes for that worker.
Performing fill-in services is usually difficult work. The hygienist can feel disoriented, uncomfortable, and downright confused at times when trying to work in an office where nothing or no one is familiar.
My experiences with temping were positive most of the time, since my willingness to come in saved the office from having to cancel a day’s worth of patients. Most of the time, other staff members and the doctor treated me well. And when they didn’t, the good news was I didn’t have to go back! I remember only two offices in that category.
Further, unless you move to Colorado or New Mexico, you do not fall under the guidelines of an independent contractor. It is in your best interest to have the employer withhold taxes from your pay. Remember this ... Uncle Sam is determined to get what belongs to him, one way or another!
Best wishes, Dianne
Dianne D. Glasscoe, RDH, BS, is a professional speaker, writer, and consultant to dental practices across the United States. She is CEO of Professional Dental Management, based in Frederick, Md. To contact Glasscoe for speaking or consulting, call (301) 874-5240 or email [email protected]. Visit her Web site at www. professionaldentalmgmt.com.
• Behavioral control - Facts that show whether the business owner has a right to direct and control how the worker does the task for which he or she is hired include the type and degree of instructions that the business owner gives to the worker.
An employee is generally subject to the business’ instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work:
• When and where to do the work
• What tools or equipment to use
• What workers to hire or to assist with the work
• Where to purchase supplies and services
• What work must be performed by a specified individual
• What order or sequence to follow
(As you can see, temporary hygienists are subject to all these controls.)
• Financial control - Facts that show whether the business has a right to control the business aspects of the worker’s job include:
• The extent to which the worker has unreimbursed business expenses. Independent contractors are more likely to have unreimbursed expenses than are employees.
• The extent of the worker’s investment An independent contractor often has a significant investment in the facilities he or she uses in performing services for someone else. However, a significant investment is not necessary for independent contractor status.
• The extent to which the worker makes his or her services available to the relevant market An independent contractor is generally free to seek out business opportunities.
Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
• How the business pays the worker An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time.
• The extent to which the worker can realize a profit or loss.
(Again, hygienists would fall under most of these controls as well.)
• Type of relationship - Written contracts describing the relationship the parties intended to create:
• Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
• The permanency of the relationship
• The extent to which services performed by the worker are a key aspect of the regular business of the company.