top of page

Should I Choose to Be Paid as a W2 or 1099 Physician?

Not infrequently, someone on our physician communities will ask the question about whether they should elect to be paid as a W2 employee or a 1099 contractor after being given the choice by a potential employer, or even if they should ask to be paid as a 1099 instead of W2 so they can use benefit from more proactive tax strategy.

This is a complicated question, and one that requires thinking seriously about what your needs are from your job, the tax deductions or advantages thsat you may utilize as a 1099, and which ones of them you actually think that you will leverage. You should definitely weigh the pros and cons of each option with appropriate counsel, such as your accountant, who can help you navigate the perks as they pertain to your specific financial situation.

Pros and cons of w2 or 1099 employment status

Disclaimers/Disclosures: This page contains information about our sponsors, as well as affiliate links, which support the group at no cost to you. These should be viewed as introductions rather than formal recommendations. We do not provide individualized advice and are not formal financial, legal, or otherwise licensed professionals. You should consult these parties as appropriate and do your own due diligence before making decisions based on this page.

Quick Links


Dive deeper into taxes with our additional educational resources:


The first thing we should mention is that you want to make sure you actually meet the IRS criteria to be considered a 1099 contractor. The IRS has very specific guidelines about who should be classified as W2 and who is an independent contractor, which you should read. Generally speaking, some key factors are how much control the employer has over your schedule and time off, how you do your job, and whether you are allowed to work elsewhere. While most of the consequences in terms of penalties and fees of getting this designation wrong fall on the employer, if you are reclassified by the IRS as an employee later, the deductions you were hoping to take (or already took) as a 1099 can be clawed back, and you may find yourself with a huge tax bill and/or penalties and interest as well. Therefore, it’s prudent to ask yourself whether you really pass the sniff test for acting as a 1099 contractor.

What is the difference between being a 1099 contractor or W2 Employee?

The differences between being W2 or 1099

A W2 employee is on the employer’s payroll and receives a salary or hourly wage, plus or minus a bonus, in addition to being eligible for benefits that are provided by the employer, such as health insurance, vacation time/PTO, and retirement plans. In return for the job security and benefits, the W2 employee must conform to a set of rules established by the employer, including when they come to work, how much time off they can have, how they perform their duties, and more. The W2 employer generally has more legal protections in terms of how they are treated and the conditions under which they can be fired. In addition, the employer pays payroll taxes, including half of your social security and Medicare taxes, for whatever benefits you qualify for as an employee, as well as pays for any local or state requirements such as unemployment insurance.

When you are hired as a 1099 contractor, you control your schedule and the conditions by which you work. You can set your hours, take as much or as little vacation as you want, and do your job in a way that you like. You can also work for whoever else you want provided that you are not violating any of the terms of the agreement you set with the company that you contract with, such as a noncompete or nondisclosure agreement. Of course, the company you are working for has the ability to decide whether they like the way you work for them, and there is no obligation for them to continue to pay you if they do not, so this is not something you will want to take too much advantage of if you expect to keep the job. As a 1099 contractor, you are not eligible for company benefits, and you will pay your own self-employment taxes and fund your own retirement plans. That said, you can also take advantage of the many perks of self employed income as a physician

What are the pros and cons of being a W2 employee versus a 1099 contractor?

This will depend on your goals, but generally, here is a summary of the pros and cons of each:

Pros of being a W2 employee

  • More job security and a steady paycheck

  • Employment benefits such as health insurance, access to retirement plans, and any applicable employer perks such as life and disability insurance, CME fund

  • Paid time off with vacation and sick time, as well as possibly CME time or paid parental leave

  • More legal protections

  • Employer runs payroll, including paying their portion of Social Security, Medicare, and other required taxes

Cons of being a W2 employee

  • Less control over your time - employer designates how much time you can take off as well as the hours you will work

  • Ability to restrict what you do outside of work or after employment (side gig work, other employment, more stringent noncompete agreements)

  • More control of exactly how you do your job

  • Tax code does not offer as many tax advantages to W2 employees

Pros of being a 1099 contractor

  • More flexibility to take vacation when you want and work the hours that you want

  • Ability to take advantage of the many tax advantages of 1099 income

  • Can set your own rates, which you should hopefully be able to negotiate significantly higher than what you’d be paid for an equivalent hour of work as an employee since you’re not getting benefits and the employer isn’t paying payroll taxes 

Cons of being a 1099 contractor

  • You can be terminated whenever the company no longer needs your services

  • You pay your own self employment taxes

  • You don’t get benefits from the employer, such as insurance and retirement

  • You don’t have any paid time off - when you don’t work, you don’t get paid, including if you have an unexpected illness that could take you out of work for a long period of time (make sure you have good disability insurance!)

Algorithm for deciding between choosing to be a W2 employee or a 1099 contractor

Which is better for you is going to depend on which of the factors above matter to you the most, in addition to the actual monetary differences between the two situations. 

Personal Considerations

Are you the primary breadwinner in the family? If you are, you may want to think carefully about how much job security that you need. As a W2 employee with a contract, it’s easier to make decisions about your life and the stability of your situation when you know it’s hard for an employer to terminate you within your contract term.

Do you need benefits? If you need health insurance benefits, this may be the decision maker. In dual income households where one person has an employed position that provides benefits to the household, the other spouse or significant other may have more flexibility in their job.

Are you willing to deal with the logistics of “running your own business?” Being a 1099 contractor means that the government will consider you to be self employed and deal with the hassles that most people’s employers take care of on their behalf. This includes appropriately withholding taxes, paying payroll if applicable, potentially filing relevant documents or attestations, potentially maintaining an entity like an LLC or S corp, maintaining your own retirement accounts, and otherwise staying on top of rules and regulations. Some people want nothing to do with this or find it incredibly stressful, so you should know yourself.

Are you going to need any financing (mortgage, business loan, etc) in the near future?  Seeking a loan is much harder to navigate as a 1099 contractor, as lenders are very critical of applications by 1099 contractors. Even if you feel your income is stable, they may not, and not having a contract guaranteeing cashflow makes lending to you riskier.

Financial Considerations

On our physician communities at Physician Side Gigs, on the whole, we’re a big fan of the idea of 1099 income. The reason for this is because the tax code was really written to favor business owners and those investing in real estate, and therefore the host of tax strategy options as a 1099 contractor are much better than the tax strategy options available to you as a W2 earner.

Learn more:

Essentially, you’re going to want to calculate what additional tax advantaged options you will get by electing to be paid as a 1099 employee and comparing that to the additional costs you will be shouldering by being self employed, and take that into consideration along with the difference in pay in both options to decide what is best.

Calculate the opportunity cost of not having W2 Income

Remember, when you pass up W2 income, you are going to be responsible for many costs that you may be used to your employer paying, as well as additional benefits they provide such as employer matches for your 401k, any other retirement benefits or pensions, paid time off, health insurance and disability and life insurance as applicable, cell phone, DEA costs, CME, society memberships, and whatever other employee perks that would’ve saved you money. Things like having to pay for health insurance may quickly tip the scales in favor of W2. Even if you don’t need these benefits, don’t forget about other expenses that will now be passed on to you.

The largest of these is most likely payroll taxes. In most cases, federal payroll taxes are about 15.3% for Social Security and Medicare taxes until you hit a wage threshold of $168,600 (2024 threshold), at which point the 12.4% for Social Security stops. However the 2.9% for Medicare continues for all income earned. These taxes are typically split by the employer and employee, with each paying 7.65% up until the wage threshold, and then splitting the 2.9% Medicare after that wage threshold. If you are self employed, regardless of your structure, you’re responsible for the full amount of those taxes yourself. Depending on where you live there may be additional requirements like unemployment taxes.

If you make a large amount of money, these payroll taxes can quickly add up. 

Add up all of these numbers to calculate the opportunity cost of bypassing W2 income, as you’ll need to make sure that this cost is offset by the tax advantages you actually use from the list of 1099 deductions above. 

Calculate the amount of tax savings you will generate as a 1099 contractor

There are the options that are available to you, and then there is what you are realistically going to take advantage of. When you are considering 1099 versus W2 for a substantial amount of money, you have to actually do the math and see which 1099 tax advantages you’re actually going to employ before making the decision. The decision about which ones you will utilize will depend on: 

  • What is pertinent to your income source. For example, you cannot write off your car if you have an online telemedicine position where driving is completely unrelated. You likely cannot pay your children in your job as a hospitalist. 

  • How much money you can afford to put aside. One of the biggest tax advantages of 1099 income is the host of retirement options self-employed income brings, including the ability to put away much more into retirement under a solo 401k or even a defined benefit plan. However, if your expenses are such that you will not be able to contribute fully or substantially to these, you want to know that.

  • How complex you want to make your life. There are all sorts of corporate structures and other tax strategy options that will allow you maximize tax savings. While they are favorites to discuss in blogs and podcasts, the reality for you may be that the lemon isn’t worth the squeeze trying to hire all the appropriate expertise to figure it out.


Of course, there is always more complexity to these things, and this is why it’s so important to talk to a tax professional to make sure that your numbers are right. Some caveats include:

If you make enough money that electing S-corp status makes sense (generally at least six figures), you will end up deciding how much of the money you make you take as salary and how much you take as a distribution, and you will only pay payroll taxes on the portion taken as salary. Be careful though - the IRS will likely not find it reasonable if you’re paid $350,000 as a hospitalist, and you only pay yourself $100,000 through payroll and assign the rest as a distribution. The salary you set has to reflect what they see as reasonable compensation for a comparable employee. Again, this is worth discussing with an accountant.

There is also the 199A deduction, also known as the QBI deduction, which allows you to deduct up to 20% of your business income and often touted by fans of business income. However, there are lots of rules you must follow here, and as high income earners and as physicians specifically, we fall into a trade category that has a lot of rules for whether you can take this deduction and how much you can take.

Before assuming that you can take this deduction, speak to a tax professional about how much of it will actually be permitted to flow through to your taxes. 

The Difference in Pay

The third factor, and often the largest caveat, is that most of the time, you should be able to negotiate a higher rate as a contractor than you would have as an employee. Since the employer is not paying for your benefits or your payroll taxes, they should be willing to pay you more per hour of work than they would have if you had elected to be an employee. If they don’t offer this from the get-go, make sure you point this out, and negotiate accordingly. Earning more as a 1099 can quickly offset some of those opportunity costs of not being W2 and the payroll taxes above.

Conclusion: Decide whether you want to be a W2 Employee or 1099 Contractor

After weighing the pros and cons of being W2 versus 1099, as well as determining if you come out ahead financially by being a 1099, you’re now in the best position to decide which option is best for you.

Good luck!

bottom of page