North Texas Dentistry Volume 9 Issue 1 2019 ISSUE 1 DE | Page 17

EXAMPLE: Dr. Smith hires Holly the Dental Hygienist to fill in for a hygienist taking six weeks’ medical leave. If Dr. Smith pays Holly as an employee, Holly will: • Sign a W-4 to have income taxes withheld • Have FICA tax withheld and matched by the office • Receive a W-2 in January of the following year showing wages earned and taxes withheld • File her IRS taxes showing earnings and deductions If Dr. Smith pays Holly as an independent contractor, Holly will: • Not sign a W-4 since she is not classified an employee • Have no taxes withheld • Receive a 1099 in January of the following year if more than $600 was paid • Report all earnings regardless of receiving a 1099 or not, as well as pay all her own FICA taxes and self employment tax (roughly 15% of earnings – 12.4% Social Security and 2.9% Medicare (source: IRS Self Employment page); some tax experts suggest saving 30% of earnings to pay self employment taxes. If taxes are not paid quarterly, she may face penalties and risks being audited by the IRS. the employee’s share of uncollected Social Security and Medicare taxes due on their compensation. If the IRS deter- mines that Holly was misclassified as an independent contractor, Dr. Smith will be liable for matching all back FICA taxes and may likely be assessed a penalty for the misclassification. Lastly, if Dr. Smith uses a staffing agency to help with placing Holly the Dental Hy- gienist, Dr. Smith can be confident that the staffing agency serves as Holly’s em- ployer of record, pays Holly as employ- ees, and invoices Dr. Smith’s office for Holly’s hours worked as well as any ad- ministrative costs or agency fees. Refer- ral services operate such that Dr. Smith serves as Holly’s employer of record and pays Holly directly and the referral serv- ice will invoice Dr. Smith an administra- tive/agency fees. The arrangement with any referral agency (who generally do not serve as the employer of record) could expose Dr. Smith to an IRS or TWC audit in order to ensure the em- ployment relationship is properly classi- fied as employer/employee, especially if Holly files an SS-8 or Form 8919. In conclusion, hiring a dental professional as an independent contractor may violate the Texas Dental Practice Act as well as TWC and IRS guidelines if the job does not meet the necessary requirements. Such misclassification can result in back taxes and penalties, not only for the den- tal practice but also for the dental profes- sional if self-employment taxes are not properly calculated, reported, and paid. Audra Morris joined her mother, Nitia Morris, at Den- tal Auxiliary Service, Inc. in 2011 and opened an office in Austin in 2012. Dental Auxil- iary Service, Inc. has helped dental offices in the Dallas area with temporary and permanent staffing needs for over 40 years. Dental Auxiliary Service is also a founding member of the Texas Dental Placement Network, a network of dental staffing agencies serving seven metro areas in Texas. Send email to [email protected] or call (214) 522-2008 for more information. While it can seem like less of an admin- istrative burden to pay Holly the Dental Hygienist as an independent contractor, it does violate the Texas Dental Practice Act as well as TWC and IRS regulations. If Holly is paid as an independent con- tactor and has no taxes withheld by the office, she can file a form with the IRS, Form SS-8, to have the agency determine the employee/independent contractor status of the employment relationship. Additionally, Holly and all workers who believe an employer improperly classi- fied them as independent contractors can use Form 8919 to figure and report www.northtexasdentistry.com | NORTH TEXAS DENTISTRY 17