If you’re here, chances are, you’re either already working as or are exploring the possibility of being a travel nurse. You've likely chosen this journey because you view travel nursing as an opportunity to build your dream career based on any combination of factors like new experiences, financial stability, and professional growth. However, travel nursing also comes with some of the same realities as with any job! One of those harder-to-navigate realities is taxes/tax preparation. In this article, we’ll share a bit about the main differences between being a W-2 employee and a 1099 (independent) contractor as well as distinguish the benefits and disadvantages of each.
Definitions of 1099 and W-2 forms
Generally speaking, a W-2 form and a 1099 form are designed for the same purpose - to report an individual’s income. We’re going to dive right into the broadly defined difference between these two classifications, as each one is used for different purposes and will differ in how taxes are filed at tax time. Most simply put, a W-2 form is a record of an employee’s income, taxes, and benefits throughout the year while 1099 forms are used to record income received by independent contractors throughout the year.
1099 Contracts: Independent Contractors
What does it mean to be an “independent contractor”?
An independent contractor is just that - an individual who is self-employed. Independent contractors are able to work based on projects that are of interest to them and within their strengths/areas of expertise. They are able to secure contracts with set start dates and end dates, determine their own roles and responsibilities within that contract, and are responsible for their own costs and expenses. Given the nature of their self-sufficiency, independent contractors have the freedom to make their own schedules and set their own rates.
What types of 1099 forms exist? How do they differ?
There are a variety of 1099 forms used and are dependent on the type of income earned during the year. There are 4 commonly used 1099 forms:
- 1099-MISC forms must be filed for any miscellaneous payments throughout the year.
- 1099-INT forms will account for interest payments throughout the year.
- 1099-DIV forms report distributions and dividends and are reported by financial institutions (i.e. banks).
- 1099-R forms will be filed for any designated distributions for payments like retirement plans, charitable gifts.
Key benefits of using a 1099:
There are some definite benefits to being a 1099 contractor, including increased freedom and being hired for specialized experience in an area. As your own boss, you will experience a work-life balance that will allow you to complete a job your contracted for on a flexible schedule. Additionally, independent contractors receive more diversified tax deductions like meal deductions, home office expenses, and phone/internet bills.
Key disadvantages of using a 1099:
On the other side of the inherent increased freedom that comes with independent contracting lies some risk. It is important to note that independent contractors may not have the same employment benefits as employees. Another consideration is that their sources of income may be temporary and once a job is complete, the onus is back on the contractor to secure the next job. Also, independent contractors have increased liability risk and tax burden.
W-2 contracts: Full-Time Employees
What does it mean to legally be an “employee”?
A W-2 employee is considered to be the traditional profile of an employee. W-2 employees receive a salary and work based on the employer’s needs and schedules. They are often hired into a role to continue their professional careers and want to work for a company as a Employees receive the company’s benefits as well and can include health insurance, retirement plan contributions, and flexible spending accounts, among others.
Key benefits of using a W-2:
There are some key benefits of using a W-2 as an employee. Within a W-2 form, employees are afforded such protections as minimum wage, paid training, overtime, as well as family and medical leave. In filing a W-2, the work being asked to be done has some structure and guidance. This often includes; when and how a job is to be performed, the set roles and responsibilities of a position, a set location for a job, and uniform policies and procedures followed by a team or a company.
Key disadvantages of using a W-2:
Aside from all the benefits of filing taxes as a W-2 employee, there are some things to consider. Since, individuals who file W-2 forms are considered direct employees of an employer, there may be a lesser degree of flexibility as compared to an independent contractor. Also, since independent contractors have to cover most of their own costs for health insurance, retirement plan contributions, they do make a bit more money upfront. W-2 employees receive a set salary that does account for some of the money to be paid towards health insurance and retirement plans contributions.
How to decide between the two
As a travel nurse, the innate freedom that comes with the lifestyle can cause an individual to consider other factors in their life when choosing between a W-2 or 1099. As mentioned previously, independent contractors have to provide their own benefits which can become quite costly, while W-2 employees are assisted with coverage through their employer’s insurance as well as worker’s compensation. For nurses that may be traveling away from their families, or even with their families, knowing that medical costs can be covered as a W-2 employee may be comforting to know.
Closing thoughts…
Deciding if you are more comfortable working and filing as a W-2 employee or an independent contractor can seem daunting, but ultimately, the choice is a personal decision. This article lays out the key things to know about each type of employment for tax purposes and draws out the main advantages and disadvantages of each type. Regardless of which type of documents you are collecting and which tax forms you are filing, it is highly recommended to consider working with an established tax professional; their expertise will confirm that your taxes are done efficiently, properly, and promptly. Keeping track of and storing your tax documents will be based on your personal preference but find a system that will work best for you.
Note: This article is only to provide general guidance on some of the situations and implications that traveling healthcare professionals are often seeking to better understand. Please consult a certified tax professional for a more in-depth understanding and assistance as this information may be subject to change and will differ based on your personal needs and filing status. At this time, all travel healthcare professionals employed with Trusted are W-2 employees with the opportunity for benefits.
