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 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 conversation is intended to alert dental health-care workers about employment practices regarding how wages are paid.
Nothing is more heartwarming than hearing that a hygienist is paid well. We work hard for every dime, but sometimes the devil is in the details. An all-too-common discussion showed up recently on social media. A dental hygienist scheduled a working interview but did not have an agreement about how she would be paid. At the end of the shift, the doctor handed her a written note, thanked her for her services, and offered her a permanent position.
Is cash king?
The doctor paid the hygienist cash for the working interview. The payment was higher than the hygienist had expected. The subsequent discussion on social media took two different views. Some comments focused on the excitement of being paid more than anticipated. Others expressed concern about being paid in cash and the potential tax implications of accepting payment in this fashion.
The conversation was disconcerting because some advice was not only inaccurate but also illegal. This is one of the dangers of believing everything posted on social media. This situation was complex.
The original poster received a startling piece of advice: "I’ve taken cash before for helping out for a day! If it’s under a certain amount you do not have to pay taxes on it." This comment, while well-intentioned, is simply not accurate.1 Accepting wages under the table is not legal. The IRS expects all workers to report all income on their tax return.2
Money is a tool
When people feel like they have enough money, folks remain calm, but when there is not enough, emotions can get in the way of the facts. Tax and wage laws are part of our modern day lives and for the most part, regulations are black and white. There is very little gray area when it comes to the IRS or specific labor laws regarding how wages are paid.
Dental hygienists are considered common law employees. According to the IRS, a worker is considered an employee when the employer controls what services will be done and how they will be done.3 In most states, a dental practice requires a dental hygienist to work under some level of supervision by a licensed dentist. This puts the dentist in control.
Also by Anne Nugent Guignon
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Dental practice act language
Supervision terms vary by state and include general, personal, direct, indirect, or remote. A few states allow a different model, but there is specific language that describes a collaborative arrangement.
Every state is different. For example, Texas hygienists must work under the supervision of a dentist and there are no collaborative provisions. In contrast, Maine has four different licensing categories: traditional general or direct supervision license; public health dental hygienist designation; dental hygiene therapist license; and independent practice dental hygienist license, which requires a hygienist to have a written agreement with a dentist to interpret radiographs.
Unintended consequences of accepting cash
Workers can unknowingly accept payment arrangements that either violate existing statutes or agree to a compensation plan that puts the worker in an awkward position with the business owner. Cash is complicated. It is not common to pay cash wages to dental hygienists, but it is not illegal. Typically, cash payments are made to independent contractors, not to workers classified as employees.
Accepting cash payments can create problems. Is there a pay stub showing deductions?4 Federal law requires employers to keep records of all worker wages, but there is no mandate for a pay stub.5 State laws dictate whether a pay stub is required.6 When a worker accepts cash without a pay stub, it is prudent to inquire if the wages are being reported as employee income, and that they be accounted for on the year-end W2 document. To further clarify, the IRS considers gift cards, cash, and year-end bonus checks as income to be included in the business payroll report.7
What if the worker chooses to report misclassification with the IRS? Will the office ledger show a cash payment? If there is no record of payment, can the IRS determine classification status? If the classification issue is not cleared up, the worker is stuck paying all the taxes. What if the worker gets hurt on the job? There is no workers’ compensation. Finally, unreported income will not be counted toward future Social Security benefits.
Comparing apples to tacos
Another hygienist chimed into the social media conversation with, "Then how come I’ve been told I don’t have to have a 1099 unless it’s more than $600 yearly?" This rhetorical question is mixing apples with tacos. The apples answer is, what you are currently doing or have done for years may not comply with the law. All income must be reported to the IRS by the worker.8
Part of being a respected professional is accepting responsibility, and this includes knowing and understanding the state practice act. In the case of payment for clinical services, the IRS has ruled repeatedly that hygienists need to be paid as employees, not as independent contractors.
The answer to the tacos part of the question is employers are only required to send a 1099 to workers paid as independent contractors who earn more than $600 during the year.9
We are not tax experts
Dental professionals are trained and educated in dental matters, not in tax and employment law. Most dental schools never discuss this information, and if it does come up, it is not covered in much depth.
Tradition is huge in dentistry. Employee misclassifications and questionable payment arrangements have a long history for those agreeing to do temporary work, or for what is referred to as a working interview. But longstanding tradition does not make these behaviors legal. Neither the IRS nor the Department of Labor consider ignorance of the law as an excuse.
Tax prep specialists, accountants, and attorneys may be skilled in preparing tax returns, but they’re not necessarily experts in the nuances of licensure laws. Don’t assume they know our wages should be paid as employees and not as 1099 independent contractors. When a tax specialist understands the licensure constraints, it will be clear that 1099 payments for clinical wages is nonsense, and the conversation can morph to appropriate filing strategies.
Keep life simple. Decline offers that insist on paying independent contractor wages and report all income properly. No one wants a date with the IRS.
Acknowledgements: Special thanks to Kara D. Kelley, SPHR, SHRM-SCP, a dental human resources specialist and CEO of Clinical HR, and Denise Hammond, MBA,for reviewing this article.References
- Nelson R. How to report cash income without a 1099. Keeper Tax. Updated November 30, 2021. Accessed December 21, 2021. https://www.keepertax.com/posts/how-to-report-cash-income-without-1099
- Northard A. How do I file taxes if I’m paid under the table? Amy Northard CPA. Accessed December 20, 2021. https://amynorthardcpa.com/how-do-i-file-taxes-if-im-paid-under-the-table/
- Employee (common-law employee). Updated February 16, 2021. Accessed December 20, 2021. https://www.irs.gov/businesses/small-businesses-self-employed/employee-common-law-employee
- Blakely-Gray R. Is it legal to pay employees in cash? Patriot Software. October 24, 2016. Accessed December 21, 2021. https://www.patriotsoftware.com/blog/payroll/is-it-legal-to-pay-employees-in-cash/.
- Recordkeeping and reporting. US Department of Labor. Accessed December 21, 2021. https://www.dol.gov/general/topic/wages/wagesrecordkeeping
- Pay stub law 2021. FMP Global. July 8, 2019. Accessed December 21, 2021. https://fmpglobal.com/resources/useful-info/us-paystub-law-by-state.
- De minimis fringe benefits. Updated July 15, 2021. Accessed December 21, 2021. https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits?
- Topic No. 401 Wages and salaries. IRS. Updated November 4, 2021. Accessed December 21, 2021. https://www.irs.gov/taxtopics/tc401.
- Am I required to file a form 1099 or other information return? IRS. Updated June 14, 2021. Accessed December 21, 2021. https://www.irs.gov/businesses/small-businesses-self-employed/am-i-required-to-file-a-form-1099-or-other-information-return
