Once nurses get a taste of the flexibility and the financial potential that come with PRN work, they rarely want to go back to staff positions. Nevertheless, PRN nurses must remember that handling finances from self-employment is very different from managing finances as employees. If you’re just getting started with PRN work – especially if you are working PRN full time – expect to undergo a learning curve regarding managing your finances. It might take a couple of months to nail just how many shifts you need to pick up to cover your monthly expenses, including expenses you likely had not contemplated before, such as self-employment tax and health insurance.
Perhaps the biggest financial change you will experience as your own boss will be related to taxes – how much to pay, when to pay, what you can deduct, and, most importantly, how to save up for paying taxes. Although hiring a Certified Public Accountant (CPA) or a licensed tax preparer is advisable to give you peace of mind and to guarantee that you are taking advantage of all possible tax deductions, it is always beneficial to have at least a basic idea of your personal bookkeeping and tax responsibilities – and it is essential to have a strategy in place to help you be prepared to make your quarterly tax payments without having to empty your bank account or go into debt to do so.
Understand Self-Employment Tax Basics
Firstly – and let’s be very clear about this – even if you pick up a single PRN shift in the entire year, it is very likely that you will need to pay self-employment tax. If you carry out any work for a company or an individual without being an employee, then you are responsible for paying self-employment taxes on that income – as long as it falls between $400 and $147,000 annually. Considering that a single RN shift through Nursa could rake in $650, having to pay self-employment tax is practically a given for PRN nurses.
From the total income you accrue from PRN work (minus applicable deductions), you will owe 15.3% in self-employment tax; this consists of two parts: 12.4% for social security and 2.9% for Medicare. Don’t forget that you still have to pay income tax as well!
Pay Estimated Taxes on Time
If you expect to owe $1,000 or more in taxes when your return is filed, then you must pay estimated taxes for income and self-employment tax. You can use Form 1040-ES to determine what will be your estimated tax for each quarter.
In order to avoid penalties for not paying estimated taxes or for paying late, set reminders on your phone for the following four estimated tax due dates (Keep in mind that if these dates fall on a Saturday, Sunday, or legal holiday, the payments won’t be due until the next business day.):
- January 1 to March 31 – April 15
- April 1 to May 31 – June 15
- June 1 to August 31 – September 15
- September 1 to December 31 – January 15 of the following year
Although there are many possible methods for paying your taxes, including via snail mail or by phone, we recommend that you take advantage of the conveniences that modern technology offers and pay online or through the IRS2Go app.
Don’t Overlook These Tax Deductions
Knowledge is power – and it’s also money you can save on taxes. Did you know that if you are self-employed, you can deduct the employer-equivalent portion of your self-employment tax in figuring your adjusted gross income? However, keep in mind that this deduction only reduces your income tax. Furthermore, when you are self-employed, you can deduct your health insurance for income tax purposes as well.
Tips for Staying on Top of Your Taxes
Now that you know how much you will have to pay in taxes and when, it is important that you choose and commit to the following strategies that will help you to be prepared to pay your estimated taxes each quarter.
Follow That Money Trail
First of all, keeping track of your income and expenses is a must, but it’s up to you how you want to do this:
- Continue to keep paper records if this is what you feel most comfortable with.
- Use Google Sheets, which you can access from all your devices.
- Download an accounting app such as QuickBooks.
Don’t Be Ashamed of Needing Help
Second, consider hiring a CPA or tax preparer at least during your first year of PRN work or until you become more familiarized with paying self-employment taxes. Alternatively, you can use one of the following free options:
Get Rid of Temptation
One tip that will help to have the money ready – and to not suffer so much from having to give it up – is to not see your estimated tax money as yours in the first place. Here are some strategies that can help you put this idea into practice:
- Keep a separate bank account – exclusively to save money for taxes – and transfer into it a percentage of each PRN-job payment. Try to start by setting aside 25-30% of each payment (for self-employment and income taxes) until you are able to figure out a more exact percentage based on your income and applicable deductions.
- If transferring a percentage of each payment is too much of a hassle, transfer the same percentage of all your PRN income (after deductions) into your bank account for taxes on a monthly basis.
- Turn each third or fourth shift into a tax-paying shift. Deposit this payment into your special bank account for taxes in its entirety or make an immediate direct deposit to the IRS in that amount. Again, once you have a better idea of how much you will owe, you will be able to adjust how many shift-payments you’ll need to set aside.
These strategies won’t give you the exact amount you will need for taxes, but following any of them will make sure that the bulk of what you owe is either paid or standing ready. Furthermore, after a month or two, you will be able to tweak the strategies to fit your particular financial situation and tax liability.
The Nursa App Makes Self-Employment Simple for Nurses
Thankfully, working PRN through Nursa cuts out many of the extra tasks that other self-employed individuals need to worry about:
- Nursa sends clinicians shift reports with the hours they have worked.
- Clinicians don’t need to send invoices to the healthcare facilities where they work since Nursa also takes care of this process for them.
- Clinicians get paid in a timely manner via direct deposit.
- Finally, clinicians have access to all their pay stubs through the Nursa app, which makes it easy to keep track of monthly income.
If you haven’t yet, download the Nursa app today and begin the life-changing journey of being your own boss.
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