No one loves filing their taxes. It can be stressful and time-consuming, and if you owe anything, it’s never fun to send off a check with hard-earned money.
Tax preparation, however, is a little extra complicated for anyone who works as an independent contractor—including PRN nurses.
Since PRN nurses work exclusively as independent contractors, filing taxes works differently than it does for traditionally employed nurses. And while the details vary significantly by state, there are a few rules of tax prep that will apply to all independent contractors regardless of the state where you’re working.
Let’s look at what you need to know for tax filing as a self-employed nurse and how you can get ready now.
How Tax Prep Is Different for PRN Work vs. Standard Employment
Taxes work differently for self-employed individuals or independent contractors compared to traditional employees with a W-2, and it is crucial to understand these differences.
In traditional employment, you’ll pay part of the taxes owed on your wages, and your employer covers the other portion. When it comes to federal taxes alone, employers will pay the following:
- Federal unemployment tax
- The employer’s share of Social Security tax (6.2% of an employee’s salary) and Medicare taxes (1.45%)
The employee will pay the other half of the Social Security and Medicare taxes (6.2% and 1.45%, respectively), along with their federal income tax. These taxes will automatically be withheld from their paychecks, meaning the money allocated for taxes never hits your account and is sent straight to the Internal Revenue Service (IRS) instead. As a result, traditionally employed people often receive a tax refund at the end of the year once they file.
Let’s look at a simplified example.
So if you make $50,000 a year with no deductions, this may be a basic breakdown:
- The employer pays $3,100 for Social Security taxes and $725 for Medicare taxes; these taxes do not impact your pay
- You pay $3,100 for Social Security taxes and $725 for Medicare taxes, along with your federal tax income (which depends on your tax bracket); these will be subtracted and withheld from your $50,000 worth of wages
When you’re an independent contractor, however, things work differently. There is no employer to cover a share of the taxes, so you’ll be paying a self-employment tax. As a result, you’re paying for the entire social security and medicare taxes yourself. The total is 12.4% for social security and 2.9% for Medicare. And perhaps just as significantly, these funds aren’t withheld from your paychecks; you need to put the money aside, make quarterly estimated tax payments at scheduled dates if applicable, and send a check to the IRS yourself.
If you make $50,000 as an independent contractor, you’ll need to pay all $6,200 and $1450 of the Social Security and Medicare taxes, plus federal taxes. The good news, of course, is that PRN work does pay higher rates than traditional employment, so there are pros and cons.
What If I’m Traditionally Employed & Work as a PRN Nurse?
If you’re traditionally employed either full-time or part-time and work as a PRN nurse on the side, you still need to account for the PRN work as an independent contractor. Your standard employment will still take care of their portion of the taxes, but you’ll need to pay the total self-employment taxes on your PRN earnings. If applicable, you will still need to make estimated quarterly payments on your PRN income.
How to Stay on Top of Your Taxes as a PRN Nurse
Since you’ll be responsible for calculating your taxes and paying them yourself as a PRN nurse, early and consistent tax preparation becomes more important than ever. So to help you stay compliant and as stress-free as possible come April every year, we’re going to share a few tips to help keep your tax prep on track.
Track All Income & Expenses Carefully
Tracking every cent of your earnings and every expense you accrue as a PRN nurse is the most important thing you can do for tax prep time. It’s much easier to create a system that allows you to record this information as you go instead of scrambling to find it all last minute.
Many reputable PRN companies will have you fill out a W-9, and they’ll send you a 1099 at the end of the year. The 1099 tells you how much you earned from that particular contract. Not all do, but it’s still up to you to track and report that income.
Nursa, for example, is a PRN staffing app. We send all of our PRN nurses 1099 forms at the beginning of each year that detail the pay earned from the year before. We also take care of invoicing so that you’re getting paid through direct deposit, and you can access your pay stubs for reference at any point through the app. Learn more about how it works here.
You also want to keep track of your expenses because you can count them as business deductions if they're high enough. When you do, this can lower your tax burden, reducing the amount that you owe. In addition, a certified public accountant (CPA) can go over different business expenses that apply to your specific work.
Income and expense tracking doesn’t require expensive specialty software or apps. You can use a simple Excel spreadsheet. Make sure you save copies of any electronic payouts and receipts from expenses. You can be audited up to six years after you file (the standard is three, but six is possible), so you’ll want to keep the receipts as proof.
Set Aside Money with Each Payout
Since you’ll need to pay your own taxes instead of having them withheld from paychecks, it’s crucial to set money aside early. If you don’t, it’s remarkably easy to wind up spending the money you need to allocate for the IRS.
When you first start, determine approximately how much you should set aside for taxes; this is important for financial planning as a self-employed worker. Many accountants recommend saving about 33% of your self-employed income for federal taxes. This percentage will typically keep you covered, and while you may end up owing much less after business expenses, deductions, and retirement contributions are accounted for, it’s better to have too much than too little saved.
You can talk to an accountant to determine how much you should put away based on your specific situation. We strongly recommend doing so, as different states have extraordinarily different tax rates and structures.
Find a Tax Consultant That Specializes in Self-Employment
We’ve already mentioned finding an accountant several times in this post, but this tip is so important we wanted to give it its own dedicated section.
Having a knowledgeable, experienced tax consultant in your corner is one of the best things you can do as a PRN nurse working as an independent contractor. They can advise you on what types of taxes you’ll need to pay, how you can maximize deductions and reduce your tax burden, determine how much you pay and when, and even complete your tax filing for you.
Look for an accountant and ideally a CPA with experience working with self-employed individuals. They’ll be best suited to guide you.
Plug Tax Dates into Your Phone
Many self-employed people need to pay federal quarterly estimated taxes four times a year after their first year. (Note that some states may require quarterly taxes the first year in business as well.) If you fail to do so, you could end up paying a hefty chunk of fees to the IRS on top of the taxes you owe.
The dates can change (and did so during the COVID-19 pandemic when the IRS pushed deadlines back), but the regular quarterly estimated tax filing dates are as follows:
- Taxes on earnings from January 1 - March 31 are due on April 15.
- Taxes on earnings from April 1 - May 31 are due on June 15.
- Taxes on earnings from June 1 - August 31 are due on September 15.
- Taxes on earnings from September 1 - December 31 are due on January 15.
- Any remaining taxes owed must be paid by April 15 when you file.
An accountant can help you determine if you need to pay quarterly estimated taxes and how much you should be paying.
Look for Tax Reduction Options
There are plenty of ways to reduce your taxes. For example, contributing to specific retirement accounts can reduce your tax burden significantly. You may also be able to claim a home office deduction if you ever do remote or virtual PRN shifts, in addition to other business expenses.
An accountant can discuss different types of deductions that you can claim and may even be able to offer suggestions for expenses that qualify.
Final Thoughts on Tax Filing as a Self-Employed Nurse
Taxes are never fun, but you can end up in massive financial or even legal trouble if you fail to pay them as needed. Knowing precisely what you have to pay can keep you on track and compliant, preventing you from racking up late fees or penalties. Consult with a certified Tax Specialist to get the best answers to all your tax questions.
