This month was my first full month as an independent contractor. I’ve learned a lot. I left the partnership track for my group and now I work for an hourly 1099 rate at my local emergency department.
A small part of me is a little sad that I won’t ever make partner in my group, but mostly I feel free. I work at my local hospital and don’t have to commute to some sites that are 1+ hours away, I don’t have to take any sick call. I have more time to spend with my family. With the increased 1099 rate, I will gross about 100k extra per year (versus the hourly rate as a pre-partner). There was a lot of push back from the company about switching, but something just felt right about in my heart and so I did it.
Financially, I may have come out ahead if I stuck with the partner track and the company does well over the next few years (which it is currently). But I have also seen groups around me lose contracts within 90 days. Emergency Medicine groups can lose contracts in an instant if a hospital decides to change course and an once multimillion dollar company can become immediately worthless. This is the reality of emergency medicine today.
I still need to work a lot for the next few years but I’m now in control. Long term, I want to be in control of my future and schedule and this is the path towards that. I self admit that I am a bit of a workaholic and typically work more than most of my peers. I’d like to phase out of this mentality over the next few years.
So here are six lessons I’ve learned as I made the transition from W2 Employee to 1099 Independent Contractor.
- Health Insurance – One of my biggest worries was obtaining health insurance for my family as an independent contractor. In some ways, it was pretty easy. You go to an insurance agent and give them your info and they find insurance for you. I didn’t know this, but there is actually still private insurance not on the healthcare.gov exchanges. It doesn’t cover all pre-existing conditions, preventive care etc but its good enough for us being thankfully fairly healthy. I ended up with a plan for about $900/month, HSA with 5k deductible. My work insurance was about $1200 so there’s a few $$$ in savings right there.
- Life/Disability Insurance – Thankfully, I bought own occupation disability insurance back during residency, it isn’t a huge plan, but its enough if I did become disabled. I applied for term life insurance as well and waiting to get approved after getting a physical exam. Just in case something happens, I want my family taken care of.
- LLC set up– The company I work for requires me to set up my own LLC to work for them as an IC which is honestly fairly easy to do online after doing some googling. I also set up a business bank account at chase to run all the money through my LLC. Mostly, this is just time and a lot of paperwork. You can hire a lawyer or financial advisor to do this, but it honestly is pretty straight forward for just an LLC. Next year, to save on taxes, I will also be opening up an S corp. This is all complicated stuff (at least to me) and definitely feel you need a tax guy if you are going beyond just an LLC.
- Retirement Accounts – I ended up hiring a financial/tax strategist. I have really been a DIY kind of person, but some of the higher level tax stuff really needs an expert. I already have a solo 401k but I am also opening up a defined benefit plan. It is supposed to be a kind of pension plan, but you can actually roll this over into an IRA at some point when you stop working. I am hoping to put about 100k in the DB plan and 66k in the solo 401. All of this money goes in pre-tax like a 401k. This will lead to large tax savings. With my HSA, taxable account, 529, crypto contributions, I should be able to save more than 200k each year at my current income.
- Bookkeeping– I initially made an account at QuickBooks but I found it a little cumbersome to use. I decided to instead just set up a spreadsheet and track all my profit and losses there. I can now write off several expenses as a 1099 such as car/mileage, home office utilities, medical equipment/licenses, etc.
- Quarterly Tax Payments– I am now on the hook for my quarterly tax payments. I am hoping to pay significantly less in taxes this year than last year because of the 401k/DB plan contributions so I won’t hit safe harbor amounts. This will require some careful calculations and make sure I don’t underpay.
Does anyone else have any thoughts or tips on being a 1099 independent contractor physician?
I would love to hear them.
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