Travel nursing assignments used to be for the nurses and nurse practitioners with wanderlust and no attachments looking to see the country and staff some of the sketchiest hospitals with terrible leadership or who suffered from bad geography. Oh, how the times have changed. It seems like the most popular trend in healthcare these days to do a travel assignment in nursing. Not only are wages paid by travel agencies to help guarantee staffing at a lottery-winning level of high, opportunity due to the onslaught of the waves of variants of the COVID-19 pandemic, compassion fatigue, burnout, and retirement is at an all-time high as well. Before you jump on the bandwagon, here are a few things you might want to think about when it comes to the implications of wandering from being an employee into the life of a contractor.
First off, it’s important to state that this is not meant to be tax advice, and if you find yourself in the situation of accepting a contract nursing assignment (or any contract role for that matter) and don’t quite know what that means, do yourself a favor and ask for guidance from your tax preparer or CPA. You really need to be aware of these differences or you might find a large amount of money due at tax time.
What’s the difference between employee and contractor?
The short answer is the ongoing relationship. Whereas employees have an anticipated ongoing relationship with the employer, contractors work a defined term of contract after which they are either released from their contract or asked if they want to re-sign for another term, which you are not obligated to do if you do not want to, and likewise they are not obligated to keep you if they don’t want to. Popular term lengths are 13 weeks, 26 weeks, and less frequently shorter (2, 4, or 8 weeks). Some travel companies are acutely employers not contract recipients, so you may still see W-2 payments like your old job.
The long answer is so much more complicated.
In exchange for not having an anticipated ongoing relationship as an employee does, the contractor nurse will typically receive a very premium compensation package, which may or may not include the taxes being withheld. (In fact, some nurses I personally know have been sideswiped by this and though their travel assignment was an amazing compensation, but as it turned out, was less than their regular wage after they had to pay the taxes).
Read this closely: if your paystub shows taxes withheld, you are not truly a contractor in the sense of the word, and rather a W-2 wage earner, and this does not apply to you as it does if your payment does not include any withholdings, so notice the difference and you will see which way to plan for the tax implications. Ignorance is not a defense, you must to do your due diligence.
Wage earners (which the vast majority of nurses are) get paid by their employer weekly or bi-weekly and will see the breakdown on their paystub of the total earnings (gross) and what is left over after FICA, social security withholding, benefits, federal and state taxes to create your actual take home payment (net). When you started working at the hospital, there were a pile of papers you filled out, and in that stack was a form called the I-9, and the W-4. The I-9 confirms you are legally able to work in the US and the W-4 is your withholding or exemption form, to put it simply.
Since the employer has no way of knowing your individual financial and revenue circumstances outside of them (second job, 18 kids, lottery winnings, alimony), you have the ability to alter your withholdings by claiming additional exemptions to have LESS taxes taken out each paycheck or if you know you will have a higher than usual tax burden from other income, you can choose to have zero exemptions and have MORE money withheld to plan for the extra tax burden. While the majority of the work is done on the side of the payroll department using tax tables based off the gross pay, these simple decisions are as complicated as it will usually get for a employee, and the end-of-year means a form W-2 arrives with the total details we are used to providing to our tax preparers.
How is contracting different?
To put it bluntly you are now a complete business in the eyes of the government. That’s right. whether you wanted to or not, if you made more than $600 in revenue for the year, you are treated as a single-member disregarded entity or if you were to choose to incorporate or have a limited liability company, that would be your choice, but for the sake of simplicity, let’s assume you are just a person who gets non-employee compensation. (A disregarded entity just means that your business revenue doesn’t have its own form 1040 to do each year, but rather it rolls in with your personal 1040 (tax return) as a section called the Schedule C.)
Since you are now the owner of this shiny new business, you must pay all the benefits which were paid by your employer because let’s face it, everyone wants their cut. FICA is replaced with SECA. Social security you were paying half of as the employee, now you’re paying all, and those darn taxes? Well, it seems nobody took them out, which is why for one, you may be seeing such an amazing “hourly rate” but do realize if you are truly not paying taxes all year, you will get hit with a penalty because the government didn’t get their cut until your 1040 was due April 14th. Payroll taxes sent by the employer are replaced by quarterly anticipated payment of taxes (a rough guess) that will get you close, but will not a be perfect guess of your owed taxes come tax time.
How do I know how much I made?
Since the contract company is not messing around with all the payroll details, withholdings, and benefits, you are on the hook to keep track of that and as stated above, manage payment to all appropriate agencies. (The good news is most of that just happens with your tax preparer or CPA). You will receive a form called the 1099-NEC (non-employee compensation) which must be postmarked by the sender to you by Jan 31st. (Instead of a I-9 as with an employee, the contractor will have a form W-9 that simply says who gets the tax burden assigned to them with simple information such as your personal or business name, address, and the social security number or tax ID to assign this 1099-NEC).
In most cases this 1099-NEC will simply have a figure of your total compensation and will not show any withholdings like your W-2 does because frankly, the company contracting you has nothing do with that. You do, you savvy business owner, and in part two of this blog, I will discuss both the benefits of being a company and how to reduce your tax burden so you are not paying more than you should pay in taxes!
If this is helpful insight, definitely consider our nursing continuing education course called Interviewing and Negotiating for New Grad NPs which covers a lot of this material in a more multimedia way.