Tax Tips from Nick: Are You Misclassifying Nurses or NPs as 1099 Contractors?

In this breakdown, nurse practitioner and attorney Nick Webb explains why misclassifying clinical staff as independent contractors can expose employers to serious state and federal penalties — especially in California.

Why Employers Choose 1099 (and Why It's Risky)

He explains the real reasons employers choose 1099 classifications, how California's AB5 law and IRS SS-8 determinations apply to nurses, NPs, LVNs, and PAs, and why W-2 employment or proper corp-to-corp arrangements are often the only compliant options.

The Core Issue

Worker classification isn't a matter of preference — it's determined by the actual working relationship. The IRS evaluates:

• Behavioral control — does the employer control how, when, and where the worker performs tasks?
• Financial control — does the worker have a significant investment, unreimbursed expenses, and the ability to seek other clients?
• Relationship type — is there a written contract, employee benefits, and permanence?

California's AB5

California's AB5 law applies an "ABC test" that presumes workers are employees unless the hiring entity can prove all three of the following:

• The worker is free from the control and direction of the hiring entity
• The worker performs work that is outside the usual course of the hiring entity's business
• The worker is customarily engaged in an independently established trade or occupation

For most clinical staff performing core patient care, this test is very difficult to pass.

The Cost of Getting It Wrong

If you employ clinical providers, misclassification can lead to:

• Back payroll taxes, penalties, and interest
• IRS Form SS-8 determinations that reclassify workers retroactively
• State-level consequences and audits
• Legal exposure from misclassified staff

This is a must-watch for anyone employing clinical providers to avoid costly mistakes, audits, and lawsuits.