Independent Contractor and Employee

[appelman]

I think I know the answer to this, but I wanted to bounce it off other people to make sure I haven't missed anything. A client is a nurse practitioner whose clients come to her through a health care service. She is compensated by the health care service. Through all of 2011 and the first four months of 2012, she has been treated as an independent contractor. In May of 2012, the service, because of liability considerations, began to pay her as an employee. Her expenses continue pretty much the same throughout the two years, including a home office that is essential for her work. My take is that she reports expenses for the first four months on a Schedule C, with later expenses going on a Form 2106. This means she takes a substantial hit because of the 2% threshold, but I don't see that she has any choice. Does anyone see an alternative?

[BOB W]

I think you (client) are (is) stuck by the way income is being reported and available tax treatment of expenses. Split year reporting seems to be the way.

[WhiteOleander]

Remember, OIH as an employee must be for the convenience of the employer. OIH may not qualify after she is considered an employee.

[Lion]

Look on the bright side of the trade-off. Now her employer is paying half of her former SE tax. And, her W/H will be considered as received evenly throughout the year, but her ES payments were recorded when received which can be a problem if income rises during the year. And, she might even qualify for benefits, such as HI or a 401(k) or expense account reimbursements or maybe even a desk and phone available at the service.

Help her adjust to her new situation. Explain to her about commuting expenses if she no longer qualifies for OIH, such as scheduling her first and last visits as close to home as possible so she has the most possible business mileage driving from client to client. Is she covered under the service's liability policy as an employee? Maybe she can lower her personal coverage.

[Burke]

Excellent points.