One of the first big financial decisions dentists face is whether to work as a W-2 employee or a 1099 independent contractor. While it may seem like a small distinction—just a different tax form at the end of the year—the structure you choose can have a lasting impact on your income, tax liability, and long-term goals.
Here’s a side-by-side comparison to help you make an informed decision.
The W-2 Employee Path
Scenario:
- Annual Income: $180,000
- Standard Deduction (Married Filing Joint): $29,200
- Taxable Income: $150,800
- Estimated Effective Tax Rate: 18%
- Federal Income Tax Owed: ~$27,144
- Payroll Taxes (Employee Share): ~$13,770 (7.65%)
- Total Tax Liability: ~$40,914
- Estimated Year-End Cash (After $90,000 in personal expenses): ~$49,086
Key Advantages:
- Stability & Simplicity: Taxes are withheld from each paycheck, and you generally don’t need to worry about estimated payments.
- Benefits Package: Many employers offer health insurance, retirement plans, paid time off, malpractice coverage, and CE reimbursement.
- Lower Administrative Burden: Less responsibility for tracking expenses or managing your own benefits.
- Predictability: A consistent schedule and more predictable workload.
Considerations:
- Less Flexibility: Limited ability to deduct business expenses.
- Retirement Savings Cap: Pre-tax 401(k) contributions are capped at $23,000 for 2025.
- Limited Autonomy: Less control over your schedule and work environment.
The 1099 Contractor Path
Scenario:
- Annual Income: $180,000
- Business Expenses Deducted: $60,000
- Net Income: $120,000
- Standard Deduction (Married Filing Joint): $29,200
- Taxable Income: $90,800
- Estimated Effective Tax Rate: 14%
- Federal Income Tax Owed: ~$12,712
- Self-Employment Tax: ~$18,360 (15.3% of net income)
- Total Tax Liability: ~$31,072
- Estimated Year-End Cash (After $30,000 in personal expenses): ~$58,928
Key Advantages:
- Tax Flexibility: You can deduct many business-related expenses, including CE, supplies, office space, subscriptions, travel, and more.
- Higher Retirement Contribution Limits: With a Solo 401(k) or SEP IRA, you could contribute up to $69,000 pre-tax depending on your income and age.
- Autonomy: More control over your work environment, schedule, and career choices.
Considerations:
- More Responsibility: You must handle estimated tax payments, retirement account setup, and detailed expense tracking.
- No Employer Benefits: You’re responsible for securing your own insurance, malpractice coverage, and other benefits.
- Risk of IRS Scrutiny: If not structured correctly, you could miss deductions or face compliance issues.
- Cash Flow Management: Inconsistent income and higher upfront costs can create challenges.
The Trade-Offs
Choosing between W-2 and 1099 status isn’t just about taxes—it’s about lifestyle, financial goals, and how much time and effort you’re willing to invest in managing your career.
- W-2 employees enjoy more structure, employer-provided benefits, and fewer administrative tasks—but may have less flexibility and fewer tax planning opportunities.
- 1099 contractors have more control and potential for tax savings—but carry more responsibility and risk, especially without professional support.
Bottom Line
There’s no one-size-fits-all answer. Both employment structures come with benefits and trade-offs, and the right choice depends on your unique situation. Some dentists prefer the predictability of W-2 employment, while others are drawn to the autonomy and tax advantages of contract work.
At Engage Advisors, we help dentists evaluate the full picture—so you can choose the path that best supports your career and financial goals. Whether you’re reviewing your first associate contract or exploring independent opportunities, we can help you make a confident, informed decision.