MEDICAL PRACTICES USING INDEPENDENT CONTRACTORS BEWARE Print
Written by Jeffrey Cohen, Esq.   
Thursday, 05 May 2011 09:05

IRS IS WATCHING

Though it is customary for many medical practices to pay its physicians as 1099 independent contractors (instead of W-2 employees), doing so can be very expensive because the IRS is expected to increase its investigations and enforcement actions in this area.

Small to mid-sized employers (especially in the areas of hospital based specialties) have traditionally had a very relaxed attitude about how their staff is paid. They figure "What's the big deal? What difference does it make if I pay someone as an independent contractor versus withholding taxes and paying them as a W-2 employee?" The answer: Plenty! Why? Because if the IRS determines a person is wrongfully characterized by the employer as an independent contractor, the employer would be responsible for all the employer related taxes plus penalties.  

Determining whether or not a person would be viewed as a W-2 employee instead of an independent contractor is not a simple thing. The "20 Point Test" typically used to guide the determination is not cut and dry. And tax advisors often advise "When in doubt, characterize the person as a W-2 employee, not as an independent contractor." That advice has never been more true than now, when our government is actively seeking ways to soothe our financial woes.

Though characterizing people as W-2 employees will impact retirement plans (given the discrimination testing requirements), mistaking employees for contractors will definitely sting! 

With over 20 years of healthcare law experience following his experience as legal counsel for the Florida Medical Association, Mr. Cohen is board certified by The Florida Bar as a specialist in healthcare law. With a strong background and expertise in transactional healthcare and corporate matters, particularly as they relate to physicians, Mr. Cohen's practice immerses him in regulatory, contract, corporate, compliance and employment related matters. He is the Founder of The Florida Healthcare Law Firm.  www.FloridaHealthcareLawFirm.com.