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.
The following information is intended to alert dental health-care workers about employment practices that can lead to worker misclassification.
“I worked as a temp in several offices last year covering maternity and surgery leaves. The offices paid me as an independent contractor. I just found out I am now facing a huge income tax bill. Do I have any recourse? I don’t have that kind of money. I am scared.”
The practice of paying temporary workers has often been based on tradition, not on actual federal or state guidelines. This article and the attached references can be a starting point for this critical conversation that will help protect both the dental practice and the workers.
Worker misclassification has been going on for decades. I received 1099 income while working as a temporary dental hygienist over 30 years ago. It was incorrect then and it is still so today.
Before opening a conversation on the solutions, it is critical to have an open dialogue about the value of conforming to both federal and state regulations, and how this is in the best interest for all involved.1-3
Workers should understand their rights, and business owners need to comply with their legal responsibilities to the worker. Workers who are misclassified are at risk for paying not only their justifiable federal and state taxes, but also the employer’s FICA employment taxes (Social Security and Medicare).
When misclassification issues come to light, businesses that have paid workers as independent contractors rather than employees will have to pay back taxes, fines, and interest, and there can even be jail time.4,5
Ignorance of the law is not an excuse accepted by the IRS, the federal Department of Labor (DOL), or individual state labor boards. In addition, the federal DOL does not condone workers signing their rights away or workers who may request an improper classification.1
There is a specific process to determine worker status if one thinks one has been misclassified as an independent contractor. Either a worker or a business owner can request a determination. IRS Form SS-8 is used to determine status. It will take time for the IRS to open a file and the process is not anonymous. The dental office will be informed of the inquiry.6,7
Workers have several years to report misclassification via an SS-8. There is no fee for this service owed to the IRS for the determination. The IRS will make a determination for each case and send either a determination letter, which is binding, or an advisory letter.7 If the IRS determines a worker has been misclassified, the agency can review records going back three years. In addition, the IRS now has a record that the business owner has been misclassifying workers.
Once a worker begins the SS-8 process, there is another critical step to avoid paying the business owner’s portion of employment tax. A worker can file Form 8919 with their federal income tax return. This allows the worker to pay only their employee portion federal taxes and FICA (Social Security and Medicare). Without Form 8919, a misclassified worker must wait for the IRS to make a final determination, in addition to any refunds that may be due.8
Filling an SS-8 and Form 8919 may seem intimidating, but it is not unfair to ask for clarification from the IRS regarding your worker status. Consider the financial implications. When misclassified, the worker ends up paying $75 in matching FICA and Medicare taxes for every $1,000 of earned income. For some, this could amount to a huge amount of money. Misclassification costs the worker money.
If you live in a state that collects income tax, it is important to find out the process for your state taxes to ensure you are in compliance. Both the federal and state governments are losing revenues over worker misclassification.4,9
Now, on to the practical side of the discussion. The world of dentistry is really, really small. While knowledge is power, consider the ramifications of filing an SS-8. It is important to carefully weigh the long-term consequences. Subjecting a dental office to IRS scrutiny will not go unnoticed and could indeed burn a bridge.
Each situation is different. If the misclassification involves only a few days, it might be wise to consider this the price of your new education. But a worker who is facing a huge tax bill from misclassification may feel very differently and choose to contact the IRS. It is your right as a worker to pursue a misclassification claim. It is wise to seek the advice of a licensed attorney or professional tax expert in these matters.
This is not to say misclassification is correct, but a more proactive approach is to not accept any future clinical positions that involve payment as an independent contractor. Be prepared to have an unemotional conversation, based on the facts, with the doctor or office manager.
If a worker expects to be classified as an employee, be prepared to wait for payment on the already established business payday. It is important to exercise a give-and-take approach in resolving these situations.
Dentistry is not being singled out. It is important for both businesses and workers to play by the rules.
1. Internal Revenue Service. Independent contractor (self-employed) or employee? IRS website. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee Reviewed or updated Jan. 16, 2020. Accessed December 26, 2019.
2. National Conference of State Legislatures. Employee misclassification. NCSL website. http://www.ncsl.org/research/labor-and-employment/employee-misclassification-resources.aspxAccessed December 26, 2019.
3. Department of Labor. Get the facts on misclassification under the Fair Labor Standards Act. DOL website. https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/misclassification-facts.pdf Accessed December 30, 2019.
4. Burr Forman. IRS misclassifications and costly penalties: Independent contractor or employee? Burr Forman website. Jul. 17, 2019. https://www.burr.com/2019/07/17/irs-misclassifications-and-costly-penalties-independent-contractor-or-employee/ Accessed December 30, 2019.
5. Maslow Media Group. 3 employee misclassification penalties you don’t want to mess with. Maslow Media Group website. https://www.maslowmedia.com/blog/3-employee-misclassification-penalties-you-dont-want-to-mess-with. Accessed December 30, 2019.
6. Internal Revenue Service. Form SS-8. Determination of worker status for purposes of federal employment taxes and income tax withholding. IRS website. https://www.irs.gov/pub/irs-pdf/fss8.pdf Accessed December 26, 2019.
7. Internal Revenue Service. Instructions for Form SS-8. IRS website. https://www.irs.gov/pub/irs-pdf/iss8.pdf Revised May 2014. Accessed December 26, 2019.
8. Internal Revenue Service. Form 1099-MISC & Independent Contractors. https://www.irs.gov/faqs/small-business-self-employed-other-business/form-1099-misc-independent-contractors Updated or revised Sept. 20, 2019. Accessed December 26, 2019.
9. Worker misclassification in Washington State leads to millions in revenue losses, new Harvard report details. https://lwp.law.harvard.edu/news/worker-misclassification-washington-state-leads-millions-revenue-losses-new-harvard-report Accessed December 30, 2019.
Anne Nugent Guignon, MPH, RDH, CSP, provides popular programs, including topics on biofilms, power driven scaling, ergonomics, hypersensitivity, and remineralization. Recipient of the 2004 Mentor of the Year Award and the 2009 ADHA Irene Newman Award, Anne has practiced clinical dental hygiene in Houston since 1971, and can be contacted at [email protected].