The Entrepreneur’s Life

Why Your 1099 Pay Should Never Match Your W-2 Salary

Preheader: This week’s personal story from the frontlines of micro business.

This Week’s Real Life Lesson

Grossing Up Your Compensation When You Move From W-2 to 1099

I was sitting at my desk late in the evening, answering coaching emails after a full clinical day, when a message came in that I have seen dozens of times over the years.

I will call him Dr. Reynolds.

Dr. Reynolds had just received an offer to work with an FQHC in a leadership role. The job itself was solid. The mission aligned. The responsibilities made sense. The problem was the compensation structure.

He was being asked to convert from W-2 employment to 1099 work through his own professional entity. Like many physicians, he assumed the hourly or annual number should stay roughly the same.

That assumption is one of the most expensive mistakes physicians make when they move into independent work.

Where I Was When This Came Up

This was not a formal coaching call. It was an informal exchange that turned into a teaching moment.

Dr. Reynolds was trying to be reasonable. He did not want to look greedy. He did not want to scare the organization. He simply wanted to be paid fairly.

What he did not realize yet was that fairness looks very different when you cross the line from employee to business owner.

What Happened in the Conversation

Dr. Reynolds asked a simple question.

“How do I figure out what my 1099 compensation should be compared to my old W-2 salary?”

That question opened the door to a much bigger conversation about how physicians misunderstand compensation when benefits disappear from view.

I explained to him that employers never think in terms of your salary alone. They think in terms of total labor cost.

When you are W-2, your employer pays for far more than your paycheck.

Malpractice insurance. Health insurance. Life insurance. Disability coverage. Payroll taxes. Administrative overhead.

You rarely see those numbers clearly because they are handled quietly in the background.

But when you move to 1099 work, all of those costs shift to you and your professional entity.

If you do not gross up your compensation, you take an immediate pay cut without realizing it.

The Core Concept Most Doctors Miss

Here is the concept that changes everything.

Your value to an organization does not change when your tax classification changes.

The total cost of your labor should remain roughly the same.

In Dr. Reynolds’ case, we used a simplified example that mirrors what I often explain in coaching.

If an employer pays a physician $350,000 as a W-2 employee, the real cost to that employer might be closer to $400,000 once benefits and employer side taxes are included.

That extra $50,000 does not disappear when you go 1099.

It becomes your responsibility.

Your malpractice. Your benefits. Your payroll taxes. Your retirement structure.

If you accept a 1099 role at $350,000 because that matches your old salary, you just absorbed the employer’s benefit costs personally.

That is not entrepreneurship. That is underpricing yourself.

This explanation mirrors exactly how I walk physicians through real contracts during coaching Contract FQHC.

Case Study

Dr. Reynolds, Family Medicine, Transitioning to Leadership

Dr. Reynolds had done many things right.

He formed a PLLC. He sought contract review. He asked for market data.

Where he got stuck was psychological, not mathematical.

He felt uncomfortable asking for more money simply because the job structure changed.

Once we reframed the conversation around total labor cost rather than salary, everything shifted.

He was no longer asking for a raise.

He was asking for equivalence.

That distinction matters.

What I Want You to Take From This

If you are considering any 1099 role, ask yourself these questions.

What was the employer’s full cost when I was W-2? What benefits am I now responsible for providing through my entity? What taxes shift to me as the business owner? What administrative costs now sit on my shoulders?

Only after answering those questions can you arrive at a fair 1099 rate.

This is why many physicians feel poorer after becoming independent even when their gross income looks similar on paper.

They failed to gross up.

The Surprising Micro Business Insight

Entrepreneurship is not about being cheaper.

It is about being clear.

Organizations often accept higher 1099 rates when you explain them transparently. Most administrators understand benefits costs very well because they manage them daily.

The confusion usually lives on the physician side of the table.

Once you learn to speak in total cost language, your negotiating posture changes permanently.

How This Connects to Bigger Physician Autonomy

This topic fits directly into the broader themes I write about regularly at The Independent Physician.

Physicians who control their professional structure tend to retain more income over time, not because they earn more per hour, but because they understand the system they are operating inside.

If you want to go deeper on how doctors transition from employment to ownership, explore related essays here and follow the threads on autonomy, self-employment, and professional micro businesses.

Download my free e-Book: Why Every Doctor Should Form a Micro-Corporation

Is This Deductible?

Is a Gamma subscription a business deduction?

Short answer. Yes, in most cases.

If you are using Gamma to create pitch decks, proposals, or presentations for business partnerships, marketing, or professional services, the subscription is considered an ordinary and necessary business expense.

The key is business use.

If the tool supports revenue generation, partnerships, or professional communication, it generally qualifies as a deductible software expense for your professional entity.

If you want a physician-specific breakdown of software deductions and how to document them correctly, this is covered in one of my PEA guides focused on micro business expenses.

Download for free my eBook: The Ultimate Guide for Tax Deductions for Micro-Business Owners

Join the Movement

“Doctors do not need to earn less to gain freedom. They need to understand how the system actually works.”

If you are ready to stop guessing and start structuring your professional life with intention, the Physician Entrepreneur Academy exists for you.

📬 Join the PEA Explorer Membership Gain access to foundational education, practical frameworks, and a growing community of clinicians building sustainable micro businesses.

Join here https://www.simplimd.com/PEAMembership

You can also start with a 1:1 Business Strategy Consultation with me that is designed to help you rethink autonomy, income, and professional control as a physician.

Final Thought

Dr. Reynolds did not need a raise.

He needed clarity.

Once you understand how compensation really works, you stop negotiating from fear and start negotiating from facts.

That is the shift from employee thinking to owner thinking.