Tax questions are an increasingly common topic in the dental hygiene community. While hygienists want accurate information, most of the questions deserve and require more than a one-line, off-the-cuff answer. The following is a typical query.
“I started temping this year. Some offices reject my W4, saying they’ll just pay me by check at the end of the day. Now I’m finding out that I’m going to have to pay double the taxes on these checks.”
The responses made me cringe
“If the offices that paid you a check at the end of the day did not ask for any info like your social security number, you’ll be fine. It’s typically ‘tax-free’ money. In my state, you can make $600 or less without having to pay taxes. It’s supposed to be $600 per year, but sometimes it turns out to be $600 per office because the office doesn’t want to be bothered with the accounting. I’ve been temping for 25 years and have never had an issue with the ones where I was paid the same day.”
And then another hygienist chimed in and reported anytime she is paid cash for a day’s work, she considers her work to be classified as casual labor. She contended that cash payments were not taxable. This was another jaw-dropping conversation full of false information.1
Both responses are simply not accurate on many, many levels. It is astonishing to see this type of misinformation on social media, and it is even more disturbing that readers do not question the accuracy of what pops up on sites.
No free money
There is no tax-free money. All earned income must be reported for tax purposes. Paying taxes accurately is part of living in this country. It is easy to get into serious hot water with the Internal Revenue Service (IRS) if all income is not reported. The same caution applies to those who live in states that collect income tax.
While the information in this article is meant as a guideline, it is critical to review your personal situation with a qualified tax preparation specialist. This discussion is limited to clearing up misconceptions about what income needs to be reported for both state and federal tax returns.
Who wants to argue with the IRS?
According to the IRS, taxable income includes employee wages, 1099 income, tips, hobby income, side hustle income, interest income, cash payments, business and investment income, the dollar value of any bartering or fringe benefits, social security and pension plan benefits, and income distributions from IRAs and other retirement plans.2 The IRS also requires that one report all interest income, earnings from activities like gambling,3 all prize monies, lotteries, and raffles.4
Bottom line, there are few sources of nontaxable income. The IRS requires persons report all income on their tax returns. And who wants to argue about income with the IRS?
Why reporting income gets confusing
The vast majority of dental hygienists are considered employees by the IRS. The employee status stems from the licensing requirement requiring supervision by a licensed dentist. Employers provide employees with a W2 form at the end of the year. This statement lists total compensation and also the amount of dollars withheld for both FICA and Medicare. If your only source of income for the year is employee income, it is easy to report total earnings on your tax return.5,6
When a clinical dental hygienist is paid as an independent contractor, a whole new set of issues come into play. Even if we are improperly classified as an independent contractor, all clinical wages must be reported, and the tax burden is now shifted to the worker. The implications of misclassification are complex and not the topic of this article.5,6
In today’s world, a growing number of dental hygienists now earn income outside of the dental office. Many sell products, some provide nondental services, and others have thriving side hustles. Earnings that come from work outside of the dental office also need to be reported. These nonclinical earnings may or may not be considered employee income, but these monies are still taxable.
For example, a dental hygienist could be employed by an athletic facility as a personal trainer. The working arrangement will determine if these earnings are employee wages or compensation as an independent contractor. In contrast, a dental hygienist who independently bakes and sells fabulous desserts or owns a dog walking service could report that income as business income. All of these nuances need to be discussed in detail with a qualified tax preparation specialist.
Keeping the taxman happy
Significant penalties, fines, and interest come into play for not reporting all income. Even if the error is deemed unintentional, the IRS may still fine the taxpayer a penalty of 20% of the underpayment. It is prudent to learn what is considered tax evasion or fraud.7,8
While many people grumble about paying taxes, there is another way to look at this responsibility. Imagine not being able to work for whatever reason. Those of us who are able to work and earn a decent living are really fortunate. We have an opportunity to carve out our own destiny, and paying taxes is just part of the process.
Disclaimer: The information provided in this article does not, and is not intended to, constitute legal or tax advice; instead, all information is for general information purposes only. This article contains links to both governmental and third-party websites. Such links are only for the convenience of the reader. Readers should contact their attorney, CPA, or qualified tax preparation specialist to obtain advice regarding any personal legal or tax matter. This article is intended to alert dental health-care workers regarding reporting income on tax returns.
References
- How should you pay casual labor? Employ/Ease. https://employeasepayroll.com/2019/03/18/how-should-you-pay-casual-labor/ Accessed December 13, 2020.
- What is taxable and non-taxable income? Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed/what-is-taxable-and-nontaxable-income. Page last reviewed or updated September 19, 2020. Accessed December 13, 2020.
- Topic No. 419 Gambling income and losses. Internal Revenue Service. https://www.irs.gov/taxtopics/tc419. Page last reviewed or updated October 9, 2020. Accessed December 13, 2020.
- Taxes on prize winnings and more! H&R Block. https://www.hrblock.com/tax-center/income/other-income/taxes-on-prize-winnings. Accessed December 13, 2020.
- Independent contractor (self-employed) or employee? Internal Revenue Service. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee. Page last reviewed or updated November 9, 2020. Accessed December 13, 2020.
- Understanding employee vs. contractor designation. Internal Revenue Service. https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation. Page last reviewed or updated July 8, 2020. Accessed December 13, 2020.
- Negligence versus tax fraud: How the IRS tells the difference. Nolo. https://www.nolo.com/legal-encyclopedia/negligence-versus-tax-fraud-irs-difference-29962.html. Accessed December 13, 2020.
- Tax evasion. https://www.law.cornell.edu/wex/tax_evasion#. Cornell Law School. Legal Information Institute. Accessed December 13, 2020.
ANNE NUGENT GUIGNON, MPH, RDH, CSP, a visionary thinker, has received numerous accolades over four decades for mentoring, research, and guiding her profession. As an international speaker and prolific author, Anne focuses is on the oral microbiome, erosion, hypersensitivity, salivary dysfunction, ergonomics, and employee law issues. She may be contacted at [email protected].
