Understanding Your Benefits

Partners,

In response to some questions we have received, I put together the below summary of the different withholdings and benefits you will see on your financials. Please contact me with any questions or things that I didn’t state clearly. In the future we hope to create some “mini-courses” for new partners (or established ones) to help educate them about these things, since most training programs don’t prepare docs adequately for the business aspects of being a doctor.

In Qlikview, there is a list of “Physician Costs” that are all paid for by your remaining money after practice expenses and central overhead are taken out. This is a larger number than your salary you will see on your paycheck, known as your “w-2 income,” which is the salary amount on which you pay income taxes. Below are the main deductions with explanations. 

Social security – this is also known as “FICA.” It funds the social security benefits you will get after retirement. There are two components: the employee contribution which is 6.2% of salary with a cap of $128,400, and an employer contribution which matches this, for a total of 12.4% of salary up to the $128,400 limit. Since we as partners at Starling are both employer and employee, we have to pay the entire amount out of our revenue. 

Medicare – Medicare tax is 1.45% on the employee side and again a matching amount on the employer side, with additional Medicare tax of 0.9% assessed on amounts of salary over $200,000 without an employer match.

Retirement Accounts – there are several types, as listed below. The total amount that may be placed in them for 2019 is $56,000. So, if the sum of the maximums allowed in the categories below is more than that for you with your particular salary, it will get reduced to the $56,000 total. For calculations that are a percent of your salary, the IRS sets an upper limit of $280,000 for 2019 for the basis of those calculations – if you make more than that, the amount you are allowed to contribute does not go up further. 

401(k) – This is the most basic/common type of retirement account. It allows money to be saved which can grow tax-free, meaning you don’t have to pay taxes on the increases in the stocks within the account, etc. The money you put in can be “pre-tax” so you also don’t pay taxes on that money before it goes into the account; in this case you pay income tax on it when you withdraw it later after retirement. If you opt for a “Roth” account instead, you use post-tax money to fund the account but don’t have to pay income taxes on it later when you withdraw it. Neither is intrinsically better in theory. Factors going in to which could be better in a given situation are mostly your current versus your future (post retirement) tax bracket, or guesses you might want to make about how high the brackets might be in the future after your retirement. The maximum allowed per year for this is $19,000 for 2019 with a $6000 “catch-up” or extra you can put away if you are 50 or older. The employer (in this case, us) is also allowed to “match” a fraction of this $19,000; we currently do 50% of what the employee (or partner) does up to 3% maximum. In other words if an employee decides to put in 5%, we add another 2.5%. For partners who contribute the maximum $19,000, the match would be capped at $8,400 or 3% of $280,000, which is the IRS cap mentioned above.

Profit-sharing – this is another way to put away retirement money. The amount allowed for this is up to 9% of salary with the same cap of $280,000, or basically up to $25,200. In addition, to be eligible for this type of plan, we must put 3% into all low-paid employees’ accounts and there are some formulas the IRS uses that can sometimes limit the contribution slightly. (The tax savings on the money we put into our own accounts is far greater than the amount in total we give to our employees’ accounts). 

Disability – we have short and long-term disability. The short-term disability is self-funded, meaning we all pay into the fund that will provide this benefit when needed. The long-term disability is a deduction on your paycheck from an outside company. This, too, can be done either pre- or post-tax. Similar to 401(k), if you use pre-tax money you would be required to pay income taxes if you ever use this benefit. If you use post-tax money to pay for it, the disbursements would be tax free if used. Since the policy is set at a percentage of your salary, it is generally wiser to use post-tax money so you get the full benefit of the funds if you need them later. Some partners had preexisting long-term disability policies and are not enrolled in the group one at Starling; all new docs are put into it. The Starling plan does use post-tax dollars to fund it. If you have an older, private plan it is definitely worth checking the premiums and other aspects of it against the Starling plan to see which is better.

I hope this is helpful.

Dr. Michael Posner