Many Doctors Moonlight. How Does it Impact Their Taxes?

Many Doctors Moonlight. How Does it Impact Their Taxes? on providentcpas.com

It’s important to understand what supplementing your income means for your taxes.

Modern medical debt is mounting. The figures run high to enter the medical field: $240,000 to $340,000 for a public or private degree with a median graduating debt of $190,000. It’s no wonder moonlighting is used by many physicians to get ahead. It can provide a valuable income stream at a crucial point in a graduate’s life, though not all who moonlight are fresh out of class.

The reasons aren’t solely financial, either. Moonlighters are part of a huge shift in the American workforce as up to 50 percent of the workforce goes freelance within the next decade. Today, burnout and job dissatisfaction mean upwards of half of all physicians are starting to seek some independence.

Whatever your motivation to moonlight, here’s what you need to know to file your taxable income properly.

Some important cautionary advice on moonlighting

You must first be certain that you’re permitted to moonlight under your current practicing circumstances. Failure to check your employer’s policy could result in severe penalties (consider the University of Colorado School of Medicine’s ban on moonlighting as an example). In other instances, you may find that only a certain number of moonlighting hours are allowed based on your experience or that they are dependent on supervision.

Policies vary between states and institutions and you will likely require a signed agreement from your primary employer to enable you to moonlight. If you’re sure that extra work won’t lead to trouble with your employer or with the law, then you’re free to consider your taxes.

Moonlighting and the 1099

An important distinction here is just how you’re choosing to earn the extra income. Who’s paying and where makes the difference between you being classed as an employee or as self-employed. Moonlighters often work at locations outside of their day job and for employers other than their primary one. This is known as locum tenens.

As such, they’re typically taxed under the 1099-MISC filing category. This makes the recipient responsible for filing fees and taxes on their moonlight income. These expenses won’t be removed from a paycheck as they usually are by a full or part-time employer under the standard W2 form.

The 1099 means you personally account for your owed taxes come April, typically via the 1040-ES filing. On the other hand, 1099 earnings do have the advantage of having certain tax deductions, provided you’re working at a secondary institution. This could be a big help with things like travel costs or supplying a home office and would be filed under Schedule C.

The Tax Cuts and Jobs Act (TCJA) could also be strongly in your favor if your job allows you to work and charge independently for your services. You could be looking at a 20 percent individual income tax deduction if you qualify. That said, working in the health care field is an out-of-favor “specified service trade or business” group when it comes to the new deduction, which means extra requirements to qualify for it; you can read about those here.

You can run your figures through this tax calculator for an idea of how the TCJA might affect you.

Moonlighting and the W2

The same can’t be said if you do all your moonlighting at the same facility as your day practice. The TCJA is less generous to physicians who remain stationary under same employer circumstances. You’ll still be making extra money, but the results would be taxed as usual by your employer and appear on your W2 as per your standard hours. There are financial upsides, however.

Onsite moonlighting at your usual facility removes the need to spend money on travel; a sometimes-hefty expense often incurred in a locum tenens scenario. Physicians who moonlight as their sole working model are also required to have pay for liability coverage insurance. This is another expense you might side step by remaining onsite with your primary employer.

Permission to moonlight and proper insurance should be priorities for every physician. Failure to ascertain either one could lead to financial liabilities that could easily consume any extra income or tax savings.

Managing today’s taxes is a big step toward your future

Choosing to moonlight will help boost your income and offer you expanded experience and independence. But don’t let your hard work be wasted by bad tax decisions. Get in touch with Provident CPA & Business Advisors and we’ll help craft a strong tax plan for your future. Among our strategies is assessing whether doctors can declare themselves as independent contractors rather than employees of a medical group, which could save them big come April. In the meantime, check out our earlier blogs on asset protection and malpractice to get more financial and tax information for medical professionals.