Overhead/PP True Income Questions

[NiemannPick]

Hey guys, I’m a CA-3 looking for jobs for the start of 2023. It has been very difficult to compare incomes between private practices as some include retirement contributions and others do not, there’s a lot that comes off the top, etc. The most frequent issue I’ve come across is determining what a fair amount of that “off the top” is -

I’ve found some people pay up to 10% of their income to “billing expenses” then have to pay their own payroll taxes, insurances, contribute to their own retirement, etc and their W2 income ends up being 60% of what they billed for, even before federal tax. So in your pocket take home ends up being 35-40% of billed production.

Is this normal? How much should I be expecting to actually take home from my production? How much should I be expecting to pay in overhead expenses, insurance, etc? All of this complexity almost makes me want to take a salaried job somewhere, no one teaches you this stuff in residency. Happy to share specific numbers from places around my area if I’m not making sense.

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[Hoya11]

Hey guys, I’m a CA-3 looking for jobs for the start of 2023. It has been very difficult to compare incomes between private practices as some include retirement contributions and others do not, there’s a lot that comes off the top, etc. The most frequent issue I’ve come across is determining what a fair amount of that “off the top” is -

I’ve found some people pay up to 10% of their income to “billing expenses” then have to pay their own payroll taxes, insurances, contribute to their own retirement, etc and their W2 income ends up being 60% of what they billed for, even before federal tax. So in your pocket take home ends up being 35-40% of billed production.

Is this normal? How much should I be expecting to actually take home from my production? How much should I be expecting to pay in overhead expenses, insurance, etc? All of this complexity almost makes me want to take a salaried job somewhere, no one teaches you this stuff in residency. Happy to share specific numbers from places around my area if I’m not making sense.

I think 75-100k off the top for your own benefits/insurance if you are 1099..

 

[NICMAN]

Overhead at our place is just shy of 5%.

 

[UscGhost]

Overhead at our place is just shy of 5%.

Usually billing company alone charges 5-6%.

Is the 5% on top of that?

 

[Status Sciaticus]

8-12% at my place.

 

[NICMAN]

Usually billing company alone charges 5-6%.

Is the 5% on top of that?

For us to hire two Anes billing specialists along with office staff, an administrator, HR, maintenance of a building which we own etc.

We don’t have a billing company. We do have economies of scale (over 45,000 cases per year not counting GI) which brings down overhead.

 

[ERRES2288]

This can be very confusing. Basically what you want to know is:

1. What is base salary
2. Average amount of partner distributions
3. How much goes into retirement with separate money from above.

This is how to compare easily to w2.

I’ve had groups tell me total comp is 500 but then included is social security tax, Medicare, insurance premiums, disability premiums, and so on. These things are included in employment positions. You aren’t really “making 500” in this case. Your making 500 minus these expenses

 

[Silo004]

I’ve had groups tell me total comp is 500 but then included is social security tax, Medicare, insurance premiums, disability premiums, and so on. These things are included in employment positions. You aren’t really “making 500” in this case. Your making 500 minus these expenses

Compared notes with a friend and his group has billing and overhead combined at 14%.

Plus all these random charges that you speak ok.

 

[aneftp]

Small players who cannot generate more than 1 million in billing will be charged 8% by the billing company. 1-10 million will be 6.5%. More than 10 million is 6% roughly.

Now these real amc. They have they billing companies so it doesn’t cost them much to absorb another anesthesia practice.

If you need a secretary. That’s another 30-50k in expenses.

 

[dumbmedstudent]

We are charged about 5% from the billing company
My group takes 5% as buy in for the first 3 years- does this sound fair to you guys?

 

[IMGASMD]

We are charged about 5% from the billing company
My group takes 5% as buy in for the first 3 years- does this sound fair to you guys?

I don’t think that’s bad at all.

 

[Hoya11]

Where is your math coming from for that? What are the biggest expenses in this total?

I think I misunderstood the question.. I guess he is doing his own billing too - which I have not seen before on an individual basis..?

The 75-100k is an estimate based on the physician benefit packages that we provide for the employed docs in my group.

401k, health care, malpractice, bare bones disability and life...

If you pick a percent of collections (6% at a minimum i would think?) that would go towards a billing company you could add that on to calculate a reasonable "off the top" figure in this situation.

The strange thing IMO is the one individual using a billing company as a singular customer.. havent seen that before.. your own (terrible) rates your own negotiations.. seems like a huge source of inefficiency.. I wonder if that is what OP meant...

 

[thinkorswim]

Where is your math coming from for that? What are the biggest expenses in this total?

$60k into 401k
$10k for malpractice
$15k for health insurance
$12k for employer portion of FICA taxes
$3k for a good CPA

These are just rough numbers, so everyone will be different. But that’s generally how you get to $100k more as 1099 being the equivalent of a W2 wage. The advantage is you can further deduct from your taxable income as 1099, which you won’t be able to do in most W2 models.

 

[pgg]

We are charged about 5% from the billing company
My group takes 5% as buy in for the first 3 years- does this sound fair to you guys?

Three years is an awfully long track in this day and age.

 

[Hoya11]

Almost no jobs I've looked at or been in offer maximum employer contributions to get to the 60k, and the vesting schedules are onerous in all but 2 jobs of the 2 dozen or so I looked at the past few years.

Additionally, the first ~20k of 401k is not a benefit. It's employee contribution.

I think +50k for a single with no kids is a reasonable equivalence for 1099 vs w2. Maybe more like 65k with kids or spouse who needs life/health insurance.

i think at the very minimum out there you are going to get 3% match and 5% profit share. If you make 400k thats 32k from your employer for 401k.

Dont downplay your 401k - one day it will be your lifeline.

Also dont forget to factor in any paid vacation the W2 job offers..

 

[amyl]

I think it depends on your personal relationships and financial situation. If one doesn't need life insurance, is single with no children, and can find cheap disability, then I'd think the total is a lot less.

For single with no kids:
1. Health: 6.5K per year is easily doable for very good insurance
2. Life: 0 per year, not needed without kids in my opinion, unless you plan on your spouse being totally dependent with no job skills.
3. Disability: 5k per year for very good specialty specific coverage, much better than offered by private and academic groups. Finding your own is vastly preferable (check white coat investor).
4. 401k: Debatable whether this is a benefit in my opinion. Unless a practice is fully funding with full immediate vesting it's more like golden handcuffs (heard from many friends this is the case and from my current job). Let's call it on average 15k a year of actual benefit from employer matching with standard 3 year vesting schedules (i.e. not actually your money) and poor matching that is common at private groups/AMCs.
5. Malpractice is probably the big ticket item here. I have seen anywhere from 10k-30k per year on this forum.

All told, for single, healthy person with no kids, benefits from the average private, academic, or AMC group will total about 35k-55k per year. The calculus changes drastically for people who have children, but I imagine one's employee contribution to healthcare and life premiums also increase substantially so it may turn out to be less of a true benefit.

I'd hope for 75k of benefits you get full funding and vesting for your 401k from day 1. For 100k of benefits it should be 15-20k a month of specialty specific disability, full vesting/funding 401k, and exceptional health insurance with low deductibles, and occurrence based malpractice with no need for tail.

Those numbers are way off in my group. We get 401 match and profit sharing that runs 40-45k a year. Disability and health are more than that. We vest in one year.

 

[UscGhost]

$60k into 401k
$10k for malpractice
$15k for health insurance
$12k for employer portion of FICA taxes
$3k for a good CPA

These are just rough numbers, so everyone will be different. But that’s generally how you get to $100k more as 1099 being the equivalent of a W2 wage. The advantage is you can further deduct from your taxable income as 1099, which you won’t be able to do in most W2 models.

I would probably say more like

40k for 401k (not 60k since 20k is your own contribution, and this assumes the employer actually contributes 40)
10k malpractice (but then the employer controls you and prevents outside work)
10k health insurance (usually you will still have to pay something)
3k CPA

But in the high tax bracket we are in, you can easily find 100-200k in deductions as a 1099, so generally you will take home MORE as a 1099. Especially if in a high tax state.

Good cpa helps

 

[dumbmedstudent]

I would probably say more like

40k for 401k (not 60k since 20k is your own contribution, and this assumes the employer actually contributes 40)
10k malpractice (but then the employer controls you and prevents outside work)
10k health insurance (usually you will still have to pay something)
3k CPA

But in the high tax bracket we are in, you can easily find 100-200k in deductions as a 1099, so generally you will take home MORE as a 1099. Especially if in a high tax state.

Good cpa helps

Wow. Some places give a full 40k in your 401k??

 

[ERRES2288]

I would probably say more like

40k for 401k (not 60k since 20k is your own contribution, and this assumes the employer actually contributes 40)
10k malpractice (but then the employer controls you and prevents outside work)
10k health insurance (usually you will still have to pay something)
3k CPA

But in the high tax bracket we are in, you can easily find 100-200k in deductions as a 1099, so generally you will take home MORE as a 1099. Especially if in a high tax state.

Good cpa helps

Please enlighten on the 100-200k in deductions. Sure if you’re the right age can throw a lot in defined benefit plan but otherwise I think this is a bit optimistic.

 

[nimbus]

Please enlighten on the 100-200k in deductions. Sure if you’re the right age can throw a lot in defined benefit plan but otherwise I think this is a bit optimistic.

My buddy is in a 1099 group. They require that he maintain a home office. So he deducts part of his mortgage, utilities, mileage to and from work, and steak dinners with his anesthesia buddy. They also deduct car leases. Our group doesn’t do any of that.

 

[nimbus]

Wow. Some places give a full 40k in your 401k??

If you’re in a true partnership and own the practice, why wouldn’t you? Since we are both the employer and employee, in the end it comes out of your own collections, but it’s more money for your retirement account and less for the tax man.

 

[Silo004]

I think it depends on your personal relationships and financial situation. If one doesn't need life insurance, is single with no children, and can find cheap disability, then I'd think the total is a lot less.

For single with no kids:
1. Health: 6.5K per year is easily doable for very good insurance
2. Life: 0 per year, not needed without kids in my opinion, unless you plan on your spouse being totally dependent with no job skills.
3. Disability: 5k per year for very good specialty specific coverage, much better than offered by private and academic groups. Finding your own is vastly preferable (check white coat investor).
4. 401k: Debatable whether this is a benefit in my opinion. Unless a practice is fully funding with full immediate vesting it's more like golden handcuffs (heard from many friends this is the case and from my current job). Let's call it on average 15k a year of actual benefit from employer matching with standard 3 year vesting schedules (i.e. not actually your money) and poor matching that is common at private groups/AMCs.
5. Malpractice is probably the big ticket item here. I have seen anywhere from 10k-30k per year on this forum.

All told, for single, healthy person with no kids, benefits from the average private, academic, or AMC group will total about 35k-55k per year. The calculus changes drastically for people who have children, but I imagine one's employee contribution to healthcare and life premiums also increase substantially so it may turn out to be less of a true benefit.

I'd hope for 75k of benefits you get full funding and vesting for your 401k from day 1. For 100k of benefits it should be 15-20k a month of specialty specific disability, full vesting/funding 401k, and exceptional health insurance with low deductibles, and occurrence based malpractice with no need for tail.

I wish I had seen this before I signed my first job offer.

 

[thinkorswim]

Almost no jobs I've looked at or been in offer maximum employer contributions to get to the 60k, and the vesting schedules are onerous in all but 2 jobs of the 2 dozen or so I looked at the past few years.

Additionally, the first ~20k of 401k is not a benefit. It's employee contribution.

I think +50k for a single with no kids is a reasonable equivalence for 1099 vs w2. Maybe more like 65k with kids or spouse who needs life/health insurance.

This is why it pays to be the employer, not just an employee. People seem so wary of 1099 (or hybrid W2) models and complain about paying their own benefits and payroll taxes, but the upside in my mind is tremendous. Between my 401k and defined benefit plan, I have put away well over $100k for retirement every year since finishing training. And it's all vested from day one. There is also great flexibility to adjust the deductions accordingly should your financial conditions change.

Please enlighten on the 100-200k in deductions. Sure if you’re the right age can throw a lot in defined benefit plan but otherwise I think this is a bit optimistic.

Retirement is the big ticket item and can be over $100k per year even as a new attending. But in addition to that:

Home office (square footage deduction, cell phone, internet)
Auto expenses (lease/depreciation, insurance, gas, maintenance, parking/tolls)
Medical/dental/vision expenses
Hospital and on-call meals
Licenses, certification, membership dues
Sutdent loan payments
New computer/laptop/phone/tablet
Disability premiums
Furniture for your home office
Expensive Michelin starrred meals with colleagues/spouses
CME/vacation expenses for that internal medicine conference on a boat in Lake Como

I'm sure there more that I'm missing and the last few are definitely in a grey area. But some folks do it and these things can add up nicely.

 

[UscGhost]

Please enlighten on the 100-200k in deductions. Sure if you’re the right age can throw a lot in defined benefit plan but otherwise I think this is a bit optimistic.

Car 20-30k
Home office 20-30k
Employ kids 10-30k, tuition reimbursement
401k 60k
Insurance 20-30k
Meals, travel 10-30k
Etc (probably forgetting some)

And that doesn't even include the defined benefit plans that older folks put 100k into (deductible)

 

[Arch Guillotti]

Car 20-30k
Home office 20-30k
Employ kids 10-30k, tuition reimbursement
401k 60k
Insurance 20-30k
Meals, travel 10-30k
Etc (probably forgetting some)

Translation: Cheat on your taxes.

 

[UscGhost]

Translation: Cheat on your taxes.

Nope. Just take advantage of the deductions provided to a small business owner.

If you don't want to deduct your travel for CME or your business vehicle or your business dinners or put 100k into your DBP, then I am sure Uncle Sam appreciates the donation

 

[amyl]

Wow. Some places give a full 40k in your 401k??

Yes my year to date 401k is at 61k…. I put in 19,500 (limit)

 

[dumbmedstudent]

If you’re in a true partnership and own the practice, why wouldn’t you? Since we are both the employer and employee, in the end it comes out of your own collections, but it’s more money for your retirement account and less for the tax man.

Yes. But people are making it sound like their employer (hospital or whatever) is putting in 40k to go with their 20k employee contribution. 40k not from their own collections.

 

[dumbmedstudent]

And 20-30k for a home office? Yikes lol

 

[nimbus]

Yes. But people are making it sound like their employer (hospital or whatever) is putting in 40k to go with their 20k employee contribution. 40k not from their own collections.

Where else would the $40k come from? Ultimately it is money you have earned that is distributed into different baskets, some taxable and some tax deferred. No organization is ever “giving” or donating anything into your retirement account. They’re not taking a loss to fund your retirement. Same for “paid vacation”.

 

[ambiturner]

Yes. But people are making it sound like their employer (hospital or whatever) is putting in 40k to go with their 20k employee contribution. 40k not from their own collections.

There are many employers that will give you the full or close to the full amount, even in academics. As nimbus said, this should absolutely not be viewed as free money as everything they give you is added into what they consider your total compensation, which is what they ultimately care about as it’s what it actually costs to employ you. So if they one day decided to give you less, you should ask for the rest as W2 lest you get a paycut.

 

[UscGhost]

And 20-30k for a home office? Yikes lol

Your S Corp can rent your home office from you and pay you rent.

Other ways to do it as well. Internet bill, utilities, portion of mortgage, square footage, etc

 

[dumbmedstudent]

True. Good points guys. I’m still new to the business!

 

[epidural man]

Those numbers are way off in my group. We get 401 match and profit sharing that runs 40-45k a year. Disability and health are more than that. We vest in one year.

Wow.

May I have a job please?

 

[amyl]

Wow.

May I have a job please?

Pm me.

 

[pgg]

Translation: Cheat on your taxes.

87,000 new IRS agents are due to be hired shortly. The audit risk for 1099'ers in this income range is about to go way up.