Sometimes, dental hygienists are misclassified as an independent contractor. When this happens, they receive a 1099 in the mail for their tax document. Unfortunately, misclassifying workers can have serious consequences. The IRS is starting to crack down on employers who misclassify employees. What can you do if you notice you have been misclassified? We’ll go over everything you need to know.
What is a 1099 Contract Worker?
A contract worker signs a W-9 instead of a W-2. However, the big difference is in how much an employee owes in taxes. Contract workers assume the entire 15% tax burden along with forgoing other employee protections, reducing the employer’s tax burden by an estimated 30%. Contract workers also do not have any taxes withheld from their paycheck and depending on how much they make, they most likely will be required to pay estimated quarterly taxes or pay all taxes in a lump sum come tax time. The IRS requires a business to issue a 1099 to any contract worker who earns more than $600 a year. In contrast, a W-2 employee has a significantly lower tax burden. This is because the employer is required to match the Social Security and Medicare contributions. A W-2 employee does have the option to withhold money from their paycheck for taxes.
How are Misclassifications Happening?
Some dentist employers misclassify dental hygienists as contractors. While this practice has been going on for decades, it is illegal in nearly every situation. This practice is often used when a dental hygienist works as a temporary, filling in for the regular hygienist or helping an office with a heavy schedule for a short time. However, this practice has been expanding with a growing number of dental offices reclassifying regular employees, either full or part time, as independent contractors.
In some cases, the employer will claim their accountant has determined it is okay to pay dental hygienists as a contractor. However, the IRS definition of an independent contractor is very clear and specific and it is actually quite rare that a dental hygienist would qualify under the IRS guidelines as an independent contractor.
So What is the Big Deal?
Misclassifying employees is illegal. Up until recently, the issue was rarely pursued. This was because the IRS’s goal was to collect taxes from whomever was willing to fork up the money. However, with more employers purposely misclassifying their employees, the IRS is now cracking down on this illegal practice.
As an employee, if you are changed to a contract worker status, you get a huge pay cut (due to the increased amount of taxes you’ll owe) if you don’t also receive a pay increase. And you will no longer be eligible for employee benefits such as worker’s compensation, unemployment insurance or paid overtime.
What Are Your Options as a Misclassified Employee?
All employee wages are made aware to the IRS, so failing to report income is illegal and can come with serious consequences. There are a few options an employee who has been misclassified can choose from:
- Option 1 – Not the best option for your pocketbook, but the simplest option: Report your income and accept responsibility for the 15% tax burden, filing as a 1099 contract worker.
- Option 2 – A slightly better option but may not get results: Contact the dental office and request a W-2. Include the definitions of a contract worker and a completed W-4 for their records. Hand deliver this request or use certified mail with return receipt requested to verify the request was sent and received.
- Option 3 – The ideal option: File an SS-8. This notifies the IRS that you may have been misclassified. A file will eventually be opened and the IRS will make a ruling. If the IRS determines that you were misclassified, the employer will be required to pay all back taxes, fines and penalties for late payment. Including IRS form 8919 in your tax return is the most correct way to determine the employee tax rate.
Option one is probably best for those who made only a couple hundred dollars from a job; in the future, be sure an employer does not misclassify you. However, if you made a couple thousand or more, the third option is your best way to proceed.