I’ve always had this idea that even though private practice pays more than a W2, the benefits offered through a W2 far outweigh the money earned in private. As a result, I figured one would have to make approximately 25-30% more in private practice in order to make up for the benefits one obtains from a W2. In this post, I will attempt to analyze the finances one earns as a W2 employee versus working as a 1099 in private practice.
I just want to preface that there’s a lot more to the story than just the finances and benefits package when deciding between private practice and W2. It’s about the type of lifestyle you want to lead, whom you want to surround yourself with, the degree of autonomy you’re looking, and a multitude of other reasons that I can cover ad infinitum. There’s even an argument to be made that one can deduct a myriad of business expenses as a 1099, thereby making private practice even more lucrative. However, in this post, I’m just going to focus on the income generated as a private practice CRNA versus a W2 CRNA.
Perhaps my analysis is flawed and I am definitely willing to admit to this. After all, I’m only good at putting people to sleep and waking them up. I’m not a math whiz. I’m not an accountant. I’m just a guy trying to better understand the microeconomics of nurse anesthesia.
With further ado, here’s the table I devised, which I will go through in greater detail in this post. My initial inquiry prior to developing this table was how much money would I have to make in private practice in order to obtain the same salary and benefits package at my W2 job and again, this is purely a question of finances.
My annual gross for 2016 was approximately $190,000. I included the retirement packages offered through my employer along with the contributions I have to make to my pension. All told, I save ~$50,000 pre-tax in my retirement accounts. However, one of the perks of working for this employer is the fact that they, too, contribute to my pension (~14% of my gross salary), so in 2016, they contributed $26,600. That $26,600 is not included in my gross salary though, but I am able to collect that money if I terminate my relationship and decide to work elsewhere. To be clear, the $50,000 that I save in my pension and retirement comes from my annual gross of $190,000. I did not factor in the $26,600 to the gross given that I don’t get to touch that money unless I retire or leave.
My employer either pays for the bulk or the entirety of my benefits package which includes malpractice, medical, dental, vision, short term disability, supplemental disability, life insurance, supplemental life, dependent life, AD&D insurance, and legal advice. Of the $1148 that is paid monthly towards my benefits, I am responsible for paying $232 while my employer covers the remaining balance of $916. One caveat is that I’m not entirely sure how much my malpractice through my employer actually costs. I came to $300 per month from my own research on policy quotes online for self-employed CRNAs. The assumption is that there’s a $1 million/$3 million limit and that coverage is an occurrence policy.
Private Practice Salary
Basically, on purely a numbers perspective, one would have to earn ~$217,000 in private to obtain the salary one would obtain from a W2 position ($190,000 W2 gross + $26,600 pension benefit). The good news about working in private practice is that one has access to a SEP IRA, which a type of retirement investment account one can open as 1099. As of 2017, the maximum contribution is $54,000; not bad considering that it’s $4,000 more you can sock away in private practice versus a W2 employee who has access to a pension and 2 retirement accounts. Most employers only offer a 401(k) and rarely do we see pensions anymore.
Private Practice Benefits
Well, unsurprisingly, if you go the private practice route, you are absolutely on your own when it comes to paying for your benefits package. I went online and found numerous quotes that mimicked the same benefits I’m receiving in my W2 and discovered that one would have to fork over $1,191 to have the access to the same benefits.
What about sick time, vacation, and ed leave?
This is something that is often overlooked when I discuss this topic with other CRNAs. At my workplace, I accrue 88 hours of sick, 110 hours of vacation time, and 40 hours of ed leave plus $1,000 of education money. At $93/hour, this amounts to a little over $23,000.
When it comes to taxes, every worker is subject to paying a Social Security and Medicare tax, which is part of the Federal Insurance Contributions Act (or FICA for short). The first $118,500 of your income is subject to a tax of 15.3%, 12.4% going to Social Security and the remaining 2.9% going to Medicare.
Every year, the FICA tax rate is calculated as follows:
Employee portion of Social Security tax: 6.2% of $118,500
Employer portion of Social Security tax: 6.2% of $118,500
Employee portion of Medicare tax: 1.45% of all income
Employer portion of Medicare tax: 1.45% of all income
Notice when you sum the employee and employer portion of Social Security tax, it adds up to 12.4%. When you sum the employee and employer contributions to Medicare, you get 2.9%.
If you’re self employed as a 1099, you are responsible for all of those taxes though it should be noted that you get a deduction on your tax return. As a W2, you’re only responsible for the employee portion of Social Security and Medicare taxes. So, what exactly does this mean?
1099 Self-Employment Taxes (Social Security + Medicare)
To keep things as simple as possible, I’ll just calculate Social Security and Medicare taxes on the first $118,500. However, just know that any income beyond $118,500 will still be subject to the 2.9% Medicare tax. However, your Social Security contributions max out at $118,500.
Social Security: 0.124 * $118,500 = $14,694
Medicare: 0.029 * $118,500 = $3,437
Total = Social Security Taxes + Medicare Taxes = $14,694 + $3,437 = $18,131
W2 Taxes (Social Security + Medicare)
Social Security: .062 * $118,500 = $7,347
Medicare: .029 * $118,500 = $3,437
Total = Social Security Taxes + Medicare Taxes = $7,347 + $3,437 = $10,784
That’s a difference of $7,347 that you’d be responsible for as a 1099 employee. Again, I just want to reiterate that even though you may be paying more in taxes and for benefits as a 1099, there are enormous tax benefits you can obtain as a 1099 (which will be covered in a future post). However, with this post, we’re looking at the gross salary of a W2 and 1099 employee using some crude numbers.
So, how much would one have to make?
Well, just by looking at the rudimentary math, in order to determine what one would have to make in private practice in order for to equal what one gets in a W2:
A couple of assumptions in my analysis that I wanted to address:
1) I tried to take into account that the average CRNA takes 4 weeks of vacation off, so that’s why I subtracted $14,000 from my total annual salary of $190,000. The annual salary of $190,000 included the 4 week vacation pay.
2) This analysis includes not taking any sick time or education time, which could skew the results by a couple thousand dollars, but in the grand scheme of things, I think it’s irrelevant to the totality of this analysis.
3) I included the employer portion of the FICA taxes because as a W2, you’re not on the hook to pay that $7,000 and in a sense, you get to pocket that money.
So, there you have it, one would have to make $243,193 in private practice in order to afford and have access to a similar benefits package that a CRNA carries at a W2 job. Of course, this is just one type of W2 that’s specific to the city I live in.
5 thoughts on “W2 vs. 1099: A Breakdown of Finances”
This is a great comparison. The breakdown is great. However, it should be pointed out that salaried employees can work far more than 40 hours in a week. In my case, I am salaried and do not receive time and a half for over 40 hours (some employers do offer this). Going salaried at my current location was a mistake in my case because I work over 50 hours a week (last week it was 69 hours) and dont get anything extra for it (these hours were not disclosed when I signed on). When I take those hours and divide it by my salary, I’m making what an RN would make. I didnt go to school to get paid that. My time and skill set is worth more than that. To top it off, I take call every 4th day and every 4th weekend. Post call days not off. And have to stay in house when on call. What I’m getting at, are you comparing a salary of 40 hours a week (without OT pay) or are you looking at a salaried situation like mine where you work a lot of hours each week without compensation after 40 hours?
*Quitting this job to go 1099 next month. The hours are interfering with family life considerably.
**Your salaried job sounds great.
Thanks for the feedback. I’m only comparing a 40 hour work week with a 40 hour work week in private. It’s possible that with all of the extra hours you’ve worked in your W2 that it could be more than what one would make in private. I think one’s income in private is largely dependent on whether you’re billing for insurance cases or if you’re getting paid a set rate by another provider and depending on how you’re compensated, you may very well may less than you were as a W2 or you could potentially make substantially more as a 1099. But again, that all depends on how much you’re willing to work, where you’re working, whether you’re able to bill, and what the compensation for billing ends up being. By the way, congratulations on making the jump to 1099. Sounds like you’re looking for more flexibility and certainly, being a 1099 affords that. Good luck!
I am interested in tax benefitsthat you can obtain as a 1099. Great post and thanks for sharing.
Just wondering if you’re still FT W2 and per diem 1099. I Currently do the same exact thing at an employer with the same exact benefits (wouldn’t be surprised if we work for the same system, but different locations). While I mostly like the system I work for, and the W2 benefits are probably as good as it gets compared to other places, whenever I work 1099 I just wish I could stay FT 1099, but I know that if I stick with my current employer I could have a decent early (55) retirement
You bring up something that I think many CRNAs face when they get a few years under their belt. Is this it? It being this hospital job. Honestly, my personal take is life is too short to worry about the money. You should do what you feel is right for you. The worst part about life is waking up every day and feeling like you’re on the hamster wheel. And I KNOW many CRNAs who work W2 hospital jobs feel that way. Don’t get me wrong. Going full time 1099 has its challenges and major headaches, but at least you can say to yourself that you’re doing your own thing and there’s something to be said about that. That being said, there is no right answer to this. I think it really comes down to what your professional/personal goals are. Forget the money. Think about what drives you and what your values are, then come up with an action plan that’ll help you actualize those values. The money is going to come because after all, you’re a CRNA.