New, complex tax laws will confront dentists in 1997

Dec. 1, 1996
Dental Economics` tax calendar will help you keep up with a new rule for making payroll tax deposits.

Dental Economics` tax calendar will help you keep up with a new rule for making payroll tax deposits.

Ron Combs, Associate Editor

Be alert, doctor! Beginning next year, a new rule for making payroll-tax deposits carries a painful penalty for the unwary, warns John K. McGill, a tax attorney and CPA.

"Doctors and other small business-owners withholding more than $50,000 in employment taxes (i.e., Social Security, Medicare payroll, federal unemployment and federal income-tax withholdings on employees) during calendar year 1995 must begin making these tax deposits electronically in 1997," explains McGill, who serves as chief editor of The Blair/McGill Advisory, a monthly dental-management newsletter. "The original legislation included a January 1, 1997 effective date, but howls of protest from doctors and other small businesses about the lack of sufficient information regarding these requirements caused Congress to delay the effective date to July 1, 1997."

While smaller practices currently may not be at the $50,000 threshold, virtually every dental practice in America will be covered by 1999, adds McGill. "Doctors who deposit $50,000 or more of employment taxes during 1996 must begin making mandatory, electronic payments beginning January 1, 1998. Moreover, the threshold is lowered in future years, so that doctors depositing $20,000 or more of employment taxes during 1997 must make mandatory, electronic payments, beginning January 1, 1999."

No longer will doctors be able to pay employment taxes simply by depositing a check along with Form 8109 at their local bank. Doctors failing to comply with the new rule will face a penalty equal to 10 percent of the taxes deposited.

"Now is the time for you to prepare to make tax deposits electronically," says McGill, who expects to see a significant rise in the number of doctors using outside payroll services to meet these new requirements. "Doctors should have received notification this past summer if they will be required to file electronically in 1997. Should you have any questions regarding this, contact the Electronic Federal Tax Payment System (EFTPS) at (800) 945-8400 or (800) 555-4477.

On another front, recent legislation has eased the requirements for doctors to treat hygienists and associates as independent contractors, rather than as employees. "Despite this new legislation, there still is a great deal of uncertainty and ambiguity about whether a particular worker should be classified as an employee or independent contractor," says McGill. He expects further legislation in 1997 aimed at establishing two or three simple tests by which doctors can be assured that workers have been properly categorized as independent contractors.

On the following pages is Dental Economics` 1997 Tax Calendar, which will ease the task of filing tax deposits, payroll taxes and estimated payments in a timely manner. Clip and save the calendar as a handy reminder for you and your tax adviser.

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