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  • Margaret Curtis, MD

Why I (Briefly) Became an Independent Contractor

Updated: Jan 30, 2019

When I started my current job, I asked that the first month I work as a per diem before starting as an employed physician. The duties and hours were exactly the same, but how I was paid was different. Here is why I did this, with semi-interesting side bars on taxes and 401k plans.

First, the difference between being an employee and an independent contractor: Any physician can be an independent contractor, although usually this status is used for per diem, locums and moonlighting. Independent contractors typically are not eligible for benefits, and have to carry their own health, disability and malpractice insurance (although many independent contractor contracts include malpractice insurance, and I would push hard for that). ICs also have to withhold their own taxes: state and federal income tax, and payroll tax. Because these are additional costs the IC has to bear, they are usually paid a higher rate than employees. They are paid via a 1099 form.

Employed physicians are exactly that. They are paid by their employer (practice), and their salary comes with taxes already withheld. They are eligible for benefits such as insurance and retirement plans. They are paid via a W2 form. (I mention W2 vs 1099 because sometimes you will hear of employee status referred to this way. “I want to be paid as a 1099, not a W2.” Now you know what that means.)

Payroll tax is listed on your pay stub as “FICA”. It has two parts: Social Security and Medicare.

Social Security tax: 12.4% of gross income, up to a limit ($128,700 in 2018). If you earn more than that limit, you don’t have to pay SS tax on the amount over the limit. The employee pays half (6.2%) and the employer pays half (6.2%).

Medicare tax: 2.9% of gross income, with no upper limit. You pay this tax on your entire salary. The employee pays half (1.45%) and employer pays half (1.45%).

If you are an independent contractor, you are both employer and employee. This means you have to pay both halves of Social Security and Medicare taxes.

Why on earth would anyone want to pay an extra 7.65% tax, plus their own insurance, when they could have their employer pay those? For your full-time long-term gig, you probably don’t, but there are some benefits to being an IC.

The biggest benefit for me was the opportunity to open a self-employed 401k (also called a solo 401k). This works just like a 401k through an employer, except that I opened it at an investment bank. With a solo 401k I can:

  1. Always have a tax-deferred retirement plan available to me. If I am ever again in a position in which my only retirement options through my employer are lousy, I can work as an IC and deduct the full allowable amount into my 401K. Then I can invest it how I want.

  2. Shelter more money. Remember, I am both employer and employee. That means I can deposit both the employee contribution ($18,500 in 2018) and the employer contribution, to reach a total of $55,000 (the max for one 401k in 2018).

The employee contribution is limited to $18,500 total per year in all your 401ks, no matter how many you have.


The employer contribution is a little more complicated: a calculator to figure out how much you can put in can be found here.

The total amount that can be put in a 401k (employee + employer) is $55,000 in 2018, but this is for each 401K.

So with access to two separate 401k accounts, and generous employer matching, I could potentially shelter $55,000 in my work 401k ($18,500 of my own + $36,500 employer contribution) +$55,000 (my “employer” contribution to my solo 401k) = $110,000, which would be pretty swank.

One month of part-time kid-doctoring doesn’t earn enough to even approach these limits. I was going for #3.

3. Do a back-door Roth IRA. There are good instructions on how to do back-door Roths out there, but the point is if you have any money in traditional IRAs (including SEP and SIMPLE) at the end of the year when you do a back-door Roth you will pay tax on that money too. I needed a place to roll my pre-existing IRA money into before I could do a back-door Roth.

So now you understand what I said to my new bosses: “I want to be paid as a 1099 employee so I can open a solo 401k, so in future I can do a back-door Roth”. This is all part of my (and your) financial acumen, which will allow us to exude authority like Laura Dern.

Definitely has a solo 401k

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