Employers withhold employees’ estimated federal and state income taxes with each paycheck. ICs must estimate their own withholding obligation and pay it to the government on a quarterly basis. Employees get a W-2 at the end of the year, whereas ICs get a Form 1099.

Employers can dictate employees’ schedules and how they do their jobs. In an IC structure, they aren’t permitted to do either of these things, which can be a real problem for the group practice of emergency medicine.

ICs are their own small businesses contracting with other small businesses to provide their services. They receive a gross sum for their services, out of which they must pay their employment taxes and a quarterly estimated income tax amount, fund whatever benefits they choose for themselves, and, in most cases, buy their own malpractice liability insurance. Depending on the state they are in, they may be able to write off certain business-related expenses—whether they are individually incorporated or not. In others, it’s best to form a professional association (PA) or professional corporation (PC). A corporate structure is generally essential to maximizing retirement-plan contributions.

But being an IC is not all positive. In an employer-employee structure, the practice only has to have one set of books, one malpractice policy, and one benefits plan, plus file just one tax return. Each IC working for the group, on the other hand, has all of these same expenses individually, making the annual PA/PC carrying cost $3,000–$5,000. Also, ICs don’t have the statutory protections afforded most employees, such as due process and overtime pay. In most states, a PA or PC cannot own stock in a non-PA/PC company, making for some difficult ownership issues. Neither can a non-physician spouse own PA or PC stock.

To sum up, being an IC is a viable emergency medicine practice option with its own set of pros and cons. Because it is extremely important to meet the IRS’ IC test criteria, some legal guidance in setting up the structure is essential. The structure also has to work for an IC’s employer(s) because, in general, having both employees and ICs doing the same full-time job is a red flag for an IRS audit.

Ronald A. Hellstern, MD, FACEP, is principal and president of Medical Practice Productivity Consultants, PA and a partner in Hospital Practice Consultants, LLC in Dallas.