Income Tax Strategies for W-2 Healthcare Providers

We recently blogged about how healthcare providers who are 1099 contractors can approach their income tax filings. As the second in our two-part series, we’ll now examine tax laws as they relate to physicians and other medical practitioners who are full-time permanent employees and receive W-2 forms. 

Changes to W-2 filing

First, lets breakdown a few facts about the new tax legislation. The current administration signed the new tax law, known as The Tax Cuts and Jobs Act, on December 22, 2017. Most of the changes went into effect in January 2018 and introduced broad changes to the U.S. tax law.

There are three main changes under the new tax law for W-2 employees:

Lost deductions

Business expenses for employees are no longer deductible. This means that deductions for unreimbursed employee expenses and miscellaneous itemized deductions are gone. Expenses such as work-related meals, mileage and professional licenses are no longer deductible on an individual’s income taxes. This also includes moving expenses, except for active military members. 

If you previously deducted expenses such as these on your tax returns, you may want to discuss a reimbursement plan with your employer. While the employee can not take such expenses as a deduction, the company/employer can.  

No personal exemptions

The next thing to change is that the standard deduction is nearly twice what it has been, but the personal exemption has been removed. First, let’s look at the good news: The standard deduction for a single filer increased from $6,350 to $12,000, and for married and joint filers, the deduction jumped from $12,700 to $24,000. 

However, the personal exemption once allowed taxpayers to subtract $4,050 from their taxable income for each claimed dependent. While the increased standard deduction will come as welcome news for some taxpayers, the eliminated personal exemptions may be a significant loss for many households. 

Taking the standard deduction may save you time while filing taxes and may ultimately be a win compared to itemizing deductions. It’s estimated that 94% of taxpayers will take the standard deduction. It is always best to consult with a tax professional when determining whether to take the standard deduction or itemizing.

Lower rates

Tax rates have been lowered to compensate for some of the lost deductions. The highest tax bracket will now pay a rate of 37% after exemptions and deductions, lower than the 2017 rate of 39.6%.

Tips for taxes … and more

As a W-2 healthcare worker, what actions should you take to optimize your tax position and set yourself up for a secure financial future?

  • Offset your tax liability – and save for the future – by contributing annually to a retirement account. Make sure you understand your employer’s retirement plan offerings, and maximize your contribution. 
  • Discuss a reimbursement plan with your employer for work-related expenses that are no longer deductible. Be sure to document all business expenses for potential reimbursements (i.e., home office expenses, mileage logs, uniforms, professional licenses, professional insurances, etc.)
  • Consult with a tax planner to be sure you are making the right decisions when calculating itemized deductions

Learning more about W-2 filing

If you are looking for more information about taxes, our medical recruiters can cover the basics about tax implications for W-2 practitioners. With one of our medical staffing consultants as the single point of contact, we can help you communicate with your new facility to ensure all your questions are answered.

Contact us today for more information.

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