The Locum Tenens Tax Guide for 2026: Everything You Need to Know (Explained Simply)

Before We Start: The Two Things You Need to Do Today

If you do nothing else from this guide, do these two things right now:

1. Open a separate bank account for taxes. Every time you get paid, move 30% into this account. Do not spend this money. It's not yours — it's the government's. You're just holding it until the quarterly payment is due.

2. Start a simple spreadsheet or use an app (QuickBooks Self-Employed, Hurdlr, or even a Google Sheet) to track your expenses. Every flight, every hotel, every Uber, every meal on assignment — log it. At the end of the year, these add up to $20,000–$50,000 in deductions, which means $5,000–$15,000 less in taxes you owe. But only if you tracked them.

That's it. Those two things will save you more money than everything else in this guide combined.

Part 1: How Locum Tenens Taxes Work (The Basics)

Why Your Taxes Are Different Now

When you worked as a permanent employee (W-2), your hospital handled everything. They withheld federal tax, state tax, Social Security, and Medicare from every paycheck. You filed once a year in April and usually got a refund.

As a locum tenens physician, none of that happens anymore.

As an independent contractor, your agency pays you the full amount. No withholding. No deductions. The money hits your bank account and it looks amazing — until you realize 30% of it belongs to the IRS.

The Three Taxes You Now Owe

As a 1099 locum, you owe three types of tax:

1. Federal income tax — Same as everyone. Based on your tax bracket. For most locum physicians, this is 32% or 35%.

2. State income tax — Depends on where you live AND where you work. Could be 0% (Texas, Florida) or 13.3% (California). More on this in Part 5.

3. Self-employment tax — This is the new one. 15.3%. This replaces what your employer used to pay for Social Security and Medicare. Now you pay both halves.

Part 2: Self-Employment Tax (The Number That Shocks Everyone)

What Is It?

When you were an employee, your hospital paid 7.65% of your salary to Social Security and Medicare, and another 7.65% was withheld from your paycheck. You probably never noticed because it happened automatically.

As an independent contractor, you pay both halves: 15.3% total.

Think of it this way: you're both the employer AND the employee now. You pay both sides.

The Math

What This Looks Like in Real Money

Important: This is SEPARATE from your income tax. This is in ADDITION to your federal and state income taxes. Yes, really.

The one piece of good news: you can deduct the "employer half" (7.65%) from your adjusted gross income, which reduces your income tax a bit.

Why This Matters

This is why locum physicians get $40,000 surprise tax bills in April. They see their full 1099 payments, assume they're in a 35% bracket, set aside 35% — and then get hit with an additional 15.3% they didn't plan for.

The fix is simple: set aside 30% of gross income, not 25%. The extra 5% covers the SE tax buffer.

Important: You only pay SE tax on 92.35% of your net self-employment income (not 100%). The IRS gives you a small break to account for the fact that employees only pay half. So on $300,000 of net income, you pay SE tax on $276,900 — not the full $300,000.

The Good News: Half Is Deductible

You can deduct half of your self-employment tax from your gross income when calculating your federal income tax. So if you pay $30,000 in SE tax, you deduct $15,000 from your taxable income. At the 35% bracket, that saves you $5,250 in federal income tax.

It doesn't eliminate the SE tax hit, but it softens it.

Real Example: What SE Tax Looks Like on $350,000

That $49,453 is the number that makes new locum physicians feel sick. But keep reading — deductions, S-Corp, and retirement contributions can cut your actual tax bill dramatically.

Part 3: Every Tax Deduction You Can Take

This is where you win back a lot of that tax money. Every dollar you deduct is a dollar you don't pay taxes on. At a 35% combined tax rate, a $10,000 deduction saves you $3,500 in taxes.

The Big Ones (Most Money Saved)

#### Travel — Potentially Your Biggest Deduction

If you travel to your assignments (and most locum physicians do), virtually all of your travel costs are deductible:

• Flights to and from assignments
• Rental cars
• Uber/Lyft/taxis
• Gas and mileage (72.5 cents per mile in 2026)
• Parking and tolls
• Baggage fees

Example: You fly to Phoenix for a 4-week EM assignment. Round-trip flight ($400) + rental car ($1,200) + gas ($150) + airport parking at home ($200) = $1,950 deductible. Do that 8 times a year and you have $15,600 in travel deductions alone.

At a 35% combined tax rate, $15,600 in travel deductions saves you approximately $5,460 in taxes.

#### Housing — Your Second Biggest Deduction

If your agency doesn't provide housing and you arrange your own:

• Hotel or Airbnb costs
• Short-term apartment rent
• Utilities at temporary housing

If your agency provides housing, you can't deduct it (because you didn't pay for it). If they give you a housing stipend, the stipend is taxable income but you deduct your actual housing costs against it.

Example: 4-week assignment, Airbnb at $2,800/month. That's deductible. Do that 8 months a year = $22,400 in housing deductions.

#### The Tax Home Rule (Read This — It's Critical)

Here's the rule that makes or breaks your travel and housing deductions:

You can only deduct travel and housing if you have a "tax home" and you're traveling away from it.

Your tax home is:

• The city where your main place of business is located, OR
• Where you maintain a permanent residence

Scenario A: You have a house in Atlanta and travel to different cities for assignments. Atlanta is your tax home. All travel and housing while on assignment is deductible. ✅

Scenario B: You sold your house, have no permanent address, and just move from assignment to assignment. The IRS says you're an "itinerant worker" with no tax home. ALL your travel and housing deductions disappear. ❌

The fix: Even if you travel full-time, maintain a permanent residence somewhere — your own apartment, a room you rent, even living with family where you pay rent and can document it. This establishes your tax home and preserves tens of thousands in deductions.

#### Meals — The 50% Rule

You can deduct 50% of meal costs while traveling for work. Two methods:

Actual method: Keep every receipt. Deduct 50% of what you actually spent.

Per diem method (easier): Use the IRS standard meal rate for your assignment location. No receipts needed — just log your work days.

Example (per diem method): 200 work days at standard locations. 200 × $37 = $7,400 deduction with zero receipt tracking.

Which method is better? If you eat cheaply on assignment, use per diem — you'll deduct more than you actually spent (legally). If you eat expensively, use actual receipts. Pick one method for the whole year.

The Medium Ones (Still Meaningful)

#### Licensing and Credentialing

• State medical license fees (every state — $200–$1,200 each)
• DEA registration ($888 for 3 years)
• Board certification and recertification ($1,000–$2,500)
• IMLC compact application fees
• Credentialing costs not reimbursed by your agency

Example: 6 state licenses at $400 avg + DEA ($296/year amortized) + board recert ($2,000) = $4,696 deduction.

#### Continuing Medical Education (CME)

• Course fees and conference registrations
• Travel to CME events (flights, hotel, meals — same rules as assignment travel)
• Online CME subscriptions (UpToDate, specialty-specific platforms)
• Medical journals and reference materials

#### Health Insurance Premiums

• Premiums for medical, dental, vision for you, your spouse, and dependents
• This is an "above-the-line" deduction — it reduces your AGI directly, which is better than a regular deduction
• Long-term care insurance premiums (age-based limits)

Example: Family health insurance at $1,800/month = $21,600 deduction.

#### Malpractice Insurance

• Deductible if YOU pay for your own policy
• If your agency provides it (most do), you can't deduct it
• Tail coverage premiums are deductible if you pay them

The Smaller Ones (Add Up Over Time)

#### Home Office

• Must be a space used exclusively for business (scheduling, credentialing, CME, admin)
• Simple method: $5/square foot, up to 300 sq ft = $1,500 max
• Actual method: Calculate the percentage of your home the office occupies, apply that % to rent/mortgage, utilities, internet

#### Professional Expenses

• Society dues (AMA, specialty societies) — $500–$2,000/year
• Scrubs and lab coats (if you buy your own)
• Stethoscope, medical instruments
• Laptop and phone (business-use percentage)
• Tax preparation and CPA fees
• Business bank account fees

The Deduction Cheat Sheet

Deduct This ✅

• Travel (flights, rental cars, mileage, Uber)
• Housing away from tax home
• Meals (50%) while traveling for work
• Licensing fees (all states, DEA, boards)
• CME courses, conferences, subscriptions
• Health insurance premiums (you + family)
• Home office (exclusive business use only)
• Professional expenses (dues, scrubs, instruments, laptop %, phone %)
• Retirement contributions (Solo 401k, SEP-IRA)
• Malpractice insurance (if you pay it yourself)
• CPA and attorney fees

Can't Deduct This ❌

• Housing provided by your agency
• Commuting from your tax home to a permanent job
• Meals not related to business travel
• Clothing that could be worn outside work
• Gym memberships
• Personal travel tacked onto an assignment

How Much Do Deductions Actually Save?

Most full-time locum physicians have $30,000–$60,000 in legitimate deductions. That translates to $9,000–$24,000 less in taxes. This is why tracking expenses matters.

The Full Deduction List

Travel

• Flights to and from assignments (100% deductible)
• Mileage at $0.725/mile (2026 IRS rate) for driving to assignments
• Rental cars
• Uber, Lyft, taxis
• Tolls and parking
• Baggage fees

Housing and Meals

• Hotel costs when traveling away from your tax home (100% deductible)
• Meals while traveling away from home (50% deductible)
• Per diem meals using IRS standard rates (see table above)

Note: If your agency covers travel and housing, you cannot deduct those costs — you can't double-dip. Only out-of-pocket expenses qualify.

Licensing and Credentials

• State medical license fees (every state)
• DEA registration and renewal
• State controlled substance certificates
• Board certification fees
• ACLS, PALS, ATLS renewal fees
• IMLC application fees

Education and Professional Development

• CME courses and conferences
• Medical journals and subscriptions
• Online education platforms
• Books and reference materials
• Professional society memberships (AMA, specialty societies)

Equipment and Supplies

• Stethoscope, otoscope, and other instruments
• Scrubs and white coats (if required for work and not suitable for everyday wear)
• Medical bag and accessories
• Laptop and tablet (business-use percentage)
• Cell phone (business-use percentage)
• Home office (if you have a dedicated workspace — see below)

Professional Services

• CPA and tax preparation fees
• Attorney fees for contract review
• Financial advisor fees (if investment-related to business)

Health Insurance

• 100% of health insurance premiums are deductible as a self-employed individual
• This includes dental and vision
• This is one of the biggest deductions most new locum physicians miss

Retirement Contributions

• Solo 401(k) contributions (up to $70,000/year — see Part 6)
• SEP-IRA contributions (up to $70,000/year)
• These reduce your taxable income dollar-for-dollar

The Home Office Deduction

If you have a dedicated space in your home used exclusively and regularly for business — reviewing charts, doing CME, managing your locum business — you can deduct it.

Two methods:

Simplified method: $5 per square foot, up to 300 square feet. Maximum deduction: $1,500/year. Easy to calculate, no depreciation recapture.

Regular method: Calculate the percentage of your home used for business (square footage of office ÷ total home square footage), then apply that percentage to your home expenses (rent or mortgage interest, utilities, insurance, repairs). More complex but often produces a larger deduction.

For a 200 sq ft office in a 2,000 sq ft home: 10% of home expenses. If your rent is $3,000/month, that's $3,600/year in deductions.

Important: The space must be used exclusively for business. A guest bedroom that doubles as an office doesn't qualify.

What These Deductions Are Actually Worth

Let's put real numbers on a typical locum physician's deductions:

At the 35% bracket, $50,000 in deductions saves you $17,500 in federal taxes. That's real money — and it's money you're leaving on the table if you're not tracking expenses.

Part 4: Quarterly Estimated Tax Payments

Why You Pay 4 Times a Year

When you were W-2, your employer sent your taxes to the IRS every pay period. The government got its money throughout the year.

As a 1099, nobody's doing that. The IRS doesn't want to wait until April to get paid, so they require quarterly estimated payments. Think of it as DIY withholding — you estimate what you'll owe and send a check four times a year.

When to Pay

Yes, the quarters are uneven. Q2 is only 2 months and Q4 is 4 months. Nobody knows why the IRS did this. Just put the dates in your calendar.

How Much to Pay Each Quarter

The easiest method (and the one that guarantees no penalties):

1. Look at last year's total tax bill (Line 24 on your Form 1040)
2. Multiply by 110% (this is the "safe harbor" — if your prior year AGI was over $150K, which yours probably was)
3. Divide by 4
4. Pay that amount each quarter

Example: Last year you owed $85,000 total. $85,000 × 110% = $93,500. Divide by 4 = $23,375 per quarter.

Even if you earn way more this year, you will NOT owe an underpayment penalty as long as you hit the 110% safe harbor. You'll owe the difference in April, but no penalties.

The Simple Rule: Set aside 30% of every paycheck into your tax account. Pay quarterly. If you're in a high-tax state or earning above $400K, bump that to 35%.

How to Pay

• IRS Direct Pay (irs.gov/directpay) — pay from your bank account, free
• EFTPS (eftps.gov) — electronic federal tax payment system, free, best for tracking
• Mail a check with Form 1040-ES — works but slower
• State payments — each state has its own estimated payment system; file separately

What Happens If You Underpay

The IRS charges an underpayment penalty based on the federal short-term interest rate plus 3 percentage points. In 2026, that's approximately 8% annualized.

On a $10,000 underpayment for one quarter, the penalty is roughly $200. Not devastating, but avoidable.

The bigger risk: If you don't set aside money throughout the year and then owe $80,000 in April, you may not have it. The 30% rule exists to prevent this.

First-Year Transition: Going from W-2 to 1099 Mid-Year

This is the scenario nobody's tax guide covers. You leave your permanent position in June and start locums in July. What happens?

January – June (W-2): Your hospital withheld taxes normally. You're fine here.

July – December (1099): Now you need to start making quarterly payments on your locum income. But you don't have a "prior year" of 1099 income to base the safe harbor on.

What to do:

1. Estimate your total income for the year (W-2 + 1099)
2. Calculate total estimated tax on that amount
3. Subtract what your W-2 employer already withheld (check your last paystub — "YTD Federal Tax Withheld")
4. The difference is what you need to pay via quarterly estimates for the rest of the year
5. Split that across the remaining quarters (Q3 and Q4)

Example: You earned $200K W-2 (Jan–Jun) with $50K withheld, then $175K in 1099 locum income (Jul–Dec). Total income: $375K. Estimated total tax: ~$110K. Minus $50K already withheld = $60K owed. Split across Q3 ($30K in September) and Q4 ($30K in January).

Pro tip: In your first year, overpay slightly. A refund is better than a penalty.

Part 5: Multi-State Taxes (The Complicated Part)

The Basic Rule

You owe state income tax in every state where you physically work. If you work assignments in 5 states, you file 5 nonresident state tax returns plus your home state return.

States With No Income Tax

Tax strategy: If you have flexibility in choosing assignments, working in no-income-tax states saves you 5–13% on that income. A $300,000 assignment in Texas vs California saves you roughly $30,000–$40,000 in state taxes. For more on rural and critical access hospital assignments in tax-friendly states, see our rural locums guide.

How It Works With Your Home State

Your home state (state of residence) taxes ALL of your income, regardless of where you earned it. But most states give you a credit for taxes paid to other states, so you don't get double-taxed.

Example:

• You live in Georgia (5.49% top rate)
• You work a $100K assignment in California (13.3% top rate)
• You pay California $13,300 in nonresident tax
• Georgia gives you a credit for the $13,300 paid to CA
• Since CA's rate is higher than GA's, you owe Georgia $0 additional on that income
• On income earned in Georgia, you pay the full GA rate

The gotcha: If you live in a high-tax state and work in a low-tax state, your home state still taxes the difference. Living in California and working in Arizona (4.54%) means you pay AZ 4.54% and then CA taxes you on the difference up to 13.3%.

The States That Are Aggressive

Some states are notably aggressive about taxing nonresident income:

• California — Taxes from day one, requires Form 590 withholding certifications, known for auditing locum physicians
• New York — "Convenience of the employer" rule can create unexpected liability
• New Jersey — High rates (10.75% top bracket) with complex nonresident rules
• Oregon — No sales tax but 9.9% income tax, aggressive compliance

How to Calculate State Tax

Most states use the days worked method:

State tax = (Days worked in state ÷ Total work days) × Total income × State tax rate

Example: You earned $400K total. You worked 40 days in Illinois out of 200 total work days.

• Illinois income: $400K × (40/200) = $80,000
• Illinois tax: $80,000 × 4.95% = $3,960

Track your days. Keep a calendar or spreadsheet logging which state you worked in each day. This is your proof if a state ever challenges your filing.

Do I Need a CPA?

If you work in 3+ states: yes. Multi-state filing is where DIY tax prep breaks down. A CPA experienced with locum physicians will cost $2,000–$5,000 for a multi-state return, but they'll save you more than that in correctly applied credits and avoiding state audit issues.

Part 6: Sole Proprietor vs S-Corp (Should You Switch?)

The Simple Version

Right now, you're probably a "sole proprietor" — that's the default when you receive 1099 income. All your income is subject to that 15.3% self-employment tax.

An S-Corporation lets you split your income into two buckets:

Bucket 1 — Salary: You pay yourself a "reasonable salary" as a W-2 employee of your own S-Corp. This portion is subject to FICA (15.3%), just like any employee.

Bucket 2 — Distributions: Everything above your salary comes out as an S-Corp distribution. You pay income tax on it, but NOT the 15.3% self-employment tax.

The savings = 2.9% Medicare tax (and 0.9% additional Medicare above $200K) on every dollar in Bucket 2.

The Math (Real Numbers)

At $350K, the S-Corp saves you about $2,200/year after admin costs. Not life-changing.

At $500K with a $200K salary:

The breakeven point: S-Corp generally becomes worth it around $200K–$250K in net locum income. Below that, the $2,000–$3,000 in annual admin costs (payroll service, S-Corp tax return, bookkeeping) eat up most of the savings.

What "Reasonable Salary" Means

The IRS requires that your S-Corp salary is "reasonable" for the work you do. For a locum physician, reasonable is typically $150,000–$250,000 depending on specialty and hours worked.

Setting your salary at $50,000 while taking $300,000 in distributions is a red flag that will trigger an audit. The IRS knows what physicians make.

S-Corp: The Decision Checklist

Consider S-Corp if:

• Net locum income consistently above $200K
• You plan to do locums for multiple years
• You're comfortable with payroll admin (or paying someone $100/month to handle it)

Skip S-Corp if:

• Net locum income under $150K
• You already have a W-2 job above the Social Security cap ($176,100)
• You only do locums a few weeks per year
• You're in your first year and still figuring things out

How to Set Up an S-Corp

1. Form an LLC in your state (or use a formation service like Northwest Registered Agent — $39 + state fees)
2. Get an EIN from the IRS (free, takes 5 minutes at irs.gov)
3. File Form 2553 to elect S-Corp status (must be filed within 75 days of formation, or by March 15 to be effective for the current year)
4. Set up payroll (Gusto is $40/month + $6/person; or use a payroll-only CPA)
5. Pay yourself a W-2 salary, take the rest as distributions
6. File Form 1120-S (S-Corp tax return) annually — your CPA handles this

Total annual cost: $2,000–$3,500 for payroll service + S-Corp tax return + bookkeeping. For a full breakdown of how locum tenens billing rates and margins work, see our locum tenens pricing guide.

Part 7: Retirement Accounts (Your Biggest Tax Shelter)

Why This Matters More Than Anything Else in This Guide

Every dollar you put into a retirement account reduces your taxable income by that dollar. At a 35% combined rate, putting $72,000 into a Solo 401(k) saves you $25,200 in taxes THIS YEAR. No other strategy in this guide saves you that much.

Solo 401(k) — The One You Want

Example with S-Corp:

• Your S-Corp pays you a $250,000 salary
• Employee deferral: $24,500
• Employer contribution: 25% × $250,000 = $62,500 (but capped at $72,000 total)
• Total contribution: $72,000
• Tax savings at 37%: $26,640

Why Solo 401(k) and Not SEP-IRA?

The SEP-IRA is simpler to open (5 minutes at Fidelity) but it has a fatal flaw: it blocks the Backdoor Roth IRA. If you're a high-income physician (and you are), you should be doing a Backdoor Roth every year. A SEP-IRA makes that messy because of the pro-rata rule.

The Solo 401(k) does NOT interfere with the Backdoor Roth. Open one instead.

Where to open one: Fidelity, Schwab, or Vanguard. Must be opened by December 31 of the tax year you want to contribute for. Contributions can be made until your tax filing deadline (April 15, or October 15 with extension).

Backdoor Roth IRA

• Contribute $7,500 to a traditional IRA (non-deductible)
• Convert it to a Roth IRA
• The money grows tax-free forever and you withdraw tax-free in retirement
• Works at any income level (that's why it's "backdoor")
• Do this every single year. It's free tax-free money.
• Works cleanly with Solo 401(k). Does NOT work cleanly with SEP-IRA.

Cash Balance Plan (For $400K+ Earners)

If you max out your Solo 401(k) ($72K) and still want to shelter more, a cash balance plan (a type of defined benefit plan) lets you contribute $100,000–$300,000+ per year depending on your age.

• Requires actuarial administration ($2,000–$5,000/year)
• Must be funded for 3-5 years to avoid penalties
• Best for physicians in their 40s-50s who want to aggressively save for retirement
• The tax savings at $400K+ income can be $35,000–$100,000 per year

This is an advanced strategy — talk to a CPA before setting one up.

HSA (If You Have a High-Deductible Health Plan)

The HSA is the only account with a triple tax benefit: deductible going in, grows tax-free, withdrawals for medical expenses are tax-free. After age 65, you can withdraw for any purpose (just pay income tax, like a traditional IRA).

Part 8: A Real Tax Return Walkthrough ($350K Locum Income)

Nobody's tax guide shows you what an actual return looks like. Here's one.

Dr. Smith's Situation

• Single, no dependents
• Full-time locum EM physician
• Earned $350,000 gross 1099 income
• Worked in Texas (no state tax), Georgia (home state), and North Carolina
• Has a Solo 401(k), does Backdoor Roth
• Operates as sole proprietor (not S-Corp)

Income and Deductions

Tax Calculations

The Key Numbers

Without deductions and retirement contributions, Dr. Smith's tax bill would be approximately $115,000 (33% effective rate). The deductions ($75K) and Solo 401(k) ($54.5K) saved roughly $39,000 in taxes.

State Taxes

Dr. Smith worked in:

• Texas: no state income tax
• Georgia (home state): ~$4,200 on GA-sourced income
• North Carolina: ~$3,800 on NC-sourced income

Total state taxes: $8,000

That's on $350,000 of gross income. A W-2 physician earning $295,000 in a state with 5% income tax would pay roughly $62,000 federal + $14,750 state = $76,750 — nearly the same total tax on $55,000 less income.

Part 9: The QBI Deduction (Free Money Most Locums Miss)

What Is It?

The Qualified Business Income (QBI) deduction lets self-employed individuals deduct a percentage of their net business income from their taxable income. Under the One Big Beautiful Bill Act (signed July 2025), the deduction increased from 20% to 23%.

This is an above-the-line deduction — it reduces your taxable income without requiring you to itemize.

The Catch: Physicians Are SSTBs

Physicians are classified as a "Specified Service Trade or Business" (SSTB). This means the QBI deduction phases out at higher income levels:

The Math When It Works

Example — Single physician, $200K net locum income:

• QBI deduction: 23% × $200,000 = $46,000
• Tax savings at 32% bracket: $14,720
• Tax savings at 35% bracket: $16,100

That's $14,000–$16,000 in free tax savings — just for being self-employed.

Example — Married physician, $380K net locum income:

• Below the MFJ phase-out threshold
• QBI deduction: 23% × $380,000 = $87,400
• Tax savings at 35%: $30,590

The Solo 401(k) Strategy to Unlock QBI

If you're single and your taxable income is just above the $250K phase-out ceiling, maxing your Solo 401(k) can push you back below the threshold and unlock the full deduction.

Example: Single physician, $290K net income. Above the phase-out — no QBI deduction. Max Solo 401(k) at $72,000 → net income drops to $218,000 → below the $250K ceiling → QBI deduction of $50,140 → saves ~$16,000 in taxes. The 401(k) contribution saves taxes twice: directly (reducing taxable income) and indirectly (unlocking QBI).

Does Dr. Smith Get the QBI Deduction?

In the Part 8 walkthrough, Dr. Smith's taxable income is $189,956 — below the $200K single threshold. He gets the full deduction: 23% × $189,956 = $43,690, saving approximately $13,980 in additional taxes. This would bring his effective rate down further — another reason to max the Solo 401(k) first.

Part 10: Advanced Strategies (For $300K+ Earners)

These strategies require more setup but can save $10,000–$50,000+ per year for high-income locum physicians.

Hiring Family Members

If you operate as a sole proprietor or S-Corp, you can hire your children (age 7+) for real, documented work — filing, social media, administrative tasks.

• Pay up to the standard deduction ($15,700 in 2026) — zero federal income tax on their earnings
• Sole proprietor: wages paid to your own children under 18 are exempt from Social Security and Medicare taxes
• Fund their Roth IRA with their earned income (up to $7,500 in 2026)
• Your business deducts the wages — reducing your taxable income

Example: Pay your 16-year-old $15,700 for legitimate admin work. You deduct $15,700 (saves ~$5,500 in taxes at 35%). They pay zero federal tax. You fund their Roth IRA with $7,500. Net cost to you: ~$10,200. Net benefit: $5,500 tax savings + $7,500 in their Roth. This compounds for decades.

Requirements: The work must be real and documented. Keep timesheets. Pay by check or direct deposit. The wage must be reasonable for the work performed. For guidance on choosing the right agency structure for your practice, see our locum tenens agency guide.

Pass-Through Entity Tax (PTET) — The SALT Workaround

The $10,000 SALT (state and local tax) deduction cap hurts physicians in high-tax states. The Pass-Through Entity Tax election is a legal workaround available in 30+ states including California, New York, New Jersey, and Connecticut.

How it works: Your S-Corp elects to pay state income tax at the entity level. The federal deduction for business taxes is unlimited — so the S-Corp deducts the full state tax payment, bypassing the $10K SALT cap entirely.

Savings: $5,000–$15,000/year for physicians in high-tax states earning $300K+.

Requirements: Must have an S-Corp (or partnership). Your CPA handles the election — it's a one-page filing in most states. Not available in all states; check with your CPA.

529 Plans for Licensing and Credentialing

Starting in 2025, 529 education savings plans can be used for certain credentialing costs and professional licensing exam fees. This is a newer provision and varies by state.

• Contributions to a 529 may be deductible on your state return (varies by state)
• Qualified withdrawals for licensing exams are tax-free
• Best for physicians pursuing new state licenses or board certifications

This is a smaller strategy but worth knowing — especially if you're in a state with a 529 deduction (New York, Virginia, Illinois, and others offer $5,000–$10,000 in annual deductions).

Part 11: W-2 vs. 1099 Offer Comparison (How to Know If the Rate Is Worth It)

The Rule of Thumb

A 1099 locum rate needs to be 20–25% higher than a W-2 rate to break even after accounting for self-employment tax, benefits, and the loss of employer contributions.

If a hospital offers you $250/hr W-2 and a locum agency offers $300/hr 1099, which is better? The answer isn't obvious — here's the full math.

Side-by-Side: $250/hr W-2 vs. $300/hr 1099

Assumptions: 2,000 hours/year (full-time), single filer, no state income tax for simplicity.

The 1099 physician takes home ~$29,000 more per year — even after paying full SE tax and health insurance — because of the deduction advantage and Solo 401(k) access.

When W-2 Wins

The W-2 is better when:

• The rate differential is less than 15% (e.g., $250/hr W-2 vs. $275/hr 1099)
• The employer offers a pension or defined benefit plan
• You're in a high-tax state and the 1099 assignment is also in that state
• You value the stability, benefits, and zero admin overhead

The Break-Even Formula

1099 break-even rate = W-2 rate × 1.22

• W-2 at $200/hr → need $244/hr 1099 to break even
• W-2 at $250/hr → need $305/hr 1099 to break even
• W-2 at $300/hr → need $366/hr 1099 to break even

Use our free locum tax calculator to model your specific situation with your state, specialty, and deduction profile.

Part 12: Tax Planning Checklist

When You Start Locum Work

- [ ] Open a separate bank account for taxes (not your personal checking)

- [ ] Set up automatic transfer of 30% of every payment to your tax account

- [ ] Open a Solo 401(k) at Fidelity, Schwab, or Vanguard (must be done by December 31 of your first year)

- [ ] Register for EFTPS (eftps.gov) to make federal estimated tax payments

- [ ] Find a CPA who specializes in locum tenens or 1099 physician income

- [ ] Start a mileage and expense log (app or spreadsheet — log every expense the day it happens)

- [ ] Confirm your tax home — do you have a permanent residence? Document it.

- [ ] Understand your state filing obligations — which states will you work in?

- [ ] Review your agency contract for housing, malpractice, and reimbursement terms (see our contract negotiation guide)

Every Quarter

- [ ] Pay federal estimated taxes (April 15, June 15, September 15, January 15)

- [ ] Pay state estimated taxes in your home state (and any states that require it)

- [ ] Reconcile your expense log — don't let it pile up

- [ ] Check your tax account balance — is 30% of income still there?

Year-Round

- [ ] Log every work day by state (you'll need this for multi-state filing)

- [ ] Save every receipt for business expenses — photo them immediately

- [ ] Track housing costs on assignment (Airbnb, hotel, short-term rent)

- [ ] Keep your mileage log current (date, destination, business purpose, miles)

- [ ] Review new state license applications — fees are deductible

At Tax Time

- [ ] Collect all 1099-NEC forms from agencies (due January 31)

- [ ] Verify 1099 amounts match your own income records

- [ ] Compile all expense receipts by category

- [ ] Provide your CPA with your state work-day log

- [ ] Confirm Solo 401(k) contribution amounts (employee + employer)

- [ ] Do your Backdoor Roth IRA conversion (deadline: December 31 for conversion, April 15 for contribution)

- [ ] Review S-Corp salary — is it reasonable and documented?

- [ ] File all state returns — don't forget nonresident returns for every work state

Part 13: The Tax Calendar (What to Do and When)

January

- [ ] Pay Q4 estimated tax (due January 15)

- [ ] Collect 1099-NEC forms from all agencies (they must send by January 31)

- [ ] Verify 1099 amounts match your records

February – March

- [ ] Gather all expense receipts and logs

- [ ] Send everything to your CPA (earlier = better)

- [ ] If you want S-Corp election for this year, file Form 2553 by March 15

April

- [ ] File federal tax return or extension (April 15)

- [ ] Pay Q1 estimated tax for the current year (April 15)

- [ ] File all state tax returns (most are also April 15)

- [ ] Make final Solo 401(k) contributions for prior year (if on extension, you have until October)

June

- [ ] Pay Q2 estimated tax (June 15)

September

- [ ] Pay Q3 estimated tax (September 15)

October – November

- [ ] If you filed an extension, file your return by October 15

- [ ] Review year-to-date income and adjust Q4 payment if needed

- [ ] Consider last-minute deduction strategies (prepay Q1 licensing, stock up on CME)

December

- [ ] Open a Solo 401(k) by December 31 if you don't have one (you can fund it later, but it must be ESTABLISHED by Dec 31)

- [ ] Max out Solo 401(k) employee deferral ($24,500)

- [ ] Review next year's state assignment strategy for tax optimization

Part 14: What to Ask Your CPA

Every tax guide tells you to "consult a CPA." None of them tell you what to actually ask. Here are the questions:

Finding the Right CPA

1. "Do you have locum tenens physicians as clients?" If no, keep looking. Multi-state physician tax is specialized.
2. "How many state returns do you typically file for a locum client?" They should say 3–8 without blinking.
3. "What's your opinion on S-Corp election for a physician earning $300K in locums?" If they say "absolutely do it" without doing the math, they're selling. If they say "let me run the numbers," they're advising.
4. "Do you handle quarterly estimated payments, or do I?" Some CPAs calculate and send reminders. Others expect you to figure it out.
5. "What's your fee for a multi-state locum return?" Expect $2,000–$5,000. If they say $500, they're not doing the state returns properly. If they say $10,000, they're overcharging.

Red Flags in a CPA

• Promises "huge S-Corp savings" without asking about your income level
• Doesn't ask about your tax home situation
• Has never filed a California nonresident return
• Can't explain the Solo 401(k) vs SEP-IRA pro-rata issue
• Charges by the form rather than by complexity

How Locums One Helps

We provide free tax professional connections as part of every locum tenens placement. Our network includes CPAs who specialize in multi-state physician filings. This isn't a paid referral — it's a service for our physicians because we've seen too many locums pay $20,000 more than they need to because of bad tax advice.

Part 15: Audit Red Flags (What Actually Triggers the IRS)

Nobody talks about this. Here's what actually gets locum physicians audited:

1. Travel deductions that exceed 50% of income. If you earn $200K and claim $120K in travel, the IRS will look.
2. Home office deduction without a tax home. If you claim a home office but also claim you're an itinerant worker with no permanent residence, those two claims contradict each other.
3. S-Corp salary below $100K for a full-time physician. The IRS knows what doctors make. A $75K salary on $400K of S-Corp income is indefensible.
4. Inconsistent filing across states. If you claim 200 work days on your federal return but your state returns only add up to 150 days, that's a discrepancy.
5. Large round numbers without documentation. "$20,000 in meals" with no receipts or per diem log = audit bait.
6. No 1099 reported. If an agency sends a 1099 to the IRS but you don't report that income on your return, the IRS computer catches this automatically.

The best audit protection: Keep clean records. A simple spreadsheet with dates, locations, amounts, and what each expense was for beats everything. If you're ever audited, organized documentation resolves 90% of cases.

Frequently Asked Questions

How much should I set aside for taxes as a locum tenens physician?

Set aside 30% of your gross 1099 income in a separate bank account. This covers federal income tax (22–37% depending on bracket), self-employment tax (15.3%), and gives you a buffer for state taxes. If you work primarily in no-income-tax states (Texas, Florida, Nevada, Washington), you may be able to reduce this to 25%. If you work in high-tax states (California, New York, New Jersey), increase to 35%.

What is self-employment tax and why is it so high?

Self-employment tax is 15.3% and covers Social Security (12.4%) and Medicare (2.9%). When you were a W-2 employee, your employer paid half of this. As a 1099 independent contractor, you pay both halves. On $300,000 in net locum income, self-employment tax is approximately $30,000 — on top of your income tax. You can deduct the employer-equivalent portion (7.65%) from your adjusted gross income, which reduces your income tax slightly.

What can I deduct as a locum tenens physician?

Every ordinary and necessary business expense: flights, rental cars, mileage (72.5¢/mile in 2026), housing during assignments, 50% of meals while traveling, state medical licenses, DEA registration, board certification, CME courses, medical journals, health insurance premiums, malpractice insurance (if you pay it), home office, scrubs, stethoscope, professional society dues, phone and laptop (business percentage), and tax preparation fees. Most full-time locum physicians have $30,000–$60,000 in annual deductions.

Should I form an S-Corp for my locum tenens income?

An S-Corp saves you 2.9% Medicare tax on income above your salary, minus $2,000–$3,500 in annual admin costs. At $200K net locum income, the net savings are about $2,000/year. At $350K, about $2,200–$3,500. At $500K, about $5,000–$6,000. The breakeven point where S-Corp makes sense is generally $200K–$250K in consistent annual locum income. Below that, the admin costs eat most of the savings. If you already have a W-2 job above the Social Security cap ($176,100), the savings shrink further.

What is a tax home and why does it matter?

Your tax home is where your main place of business is located or where you maintain a permanent residence. You can only deduct travel and housing expenses if you're traveling AWAY from your tax home on temporary assignments (expected to last under one year). If you have no permanent residence and move from assignment to assignment, the IRS may classify you as an "itinerant worker" with no tax home — which eliminates all travel and housing deductions. Maintaining a home base (even a rented apartment) is essential for preserving these deductions, which can total $20,000–$50,000 per year.

How do I handle taxes when I work in multiple states?

You file a nonresident state tax return in every state where you earned income (except the 9 states with no income tax). Your home state taxes all of your income but gives you a credit for taxes paid to other states. Calculate state income based on days worked: (days in state ÷ total work days) × total income. Track every work day by state in a spreadsheet. Working in no-income-tax states (Texas, Florida, Nevada, Washington) is the most tax-efficient strategy.

What is the best retirement account for a locum tenens physician?

A Solo 401(k). You can contribute up to $72,000/year ($80,000 if over 50, $83,250 if age 60–63), all of which is tax-deductible. Unlike a SEP-IRA, a Solo 401(k) does not interfere with the Backdoor Roth IRA strategy — which every high-income physician should be doing. Open one at Fidelity, Schwab, or Vanguard. It must be established by December 31 of the tax year, but contributions can be made until your filing deadline.

When are quarterly estimated tax payments due?

Q1: April 15 | Q2: June 15 | Q3: September 15 | Q4: January 15 (of the following year). To avoid underpayment penalties, use the 110% safe harbor: pay 110% of last year's total tax liability in four equal quarterly installments. Even if your income increases significantly, you won't owe a penalty. Pay via IRS Direct Pay (irs.gov/directpay) or EFTPS (eftps.gov).

How do I transition from W-2 to 1099 mid-year?

Estimate your total income for the year (W-2 + expected 1099). Calculate total estimated tax on that amount. Subtract what your W-2 employer already withheld (check your last W-2 paystub — "YTD Federal Tax Withheld"). The difference is what you need to pay via quarterly estimates for the remaining quarters. In your first year, overpay slightly — a refund is better than a penalty. Open a Solo 401(k) before December 31 of your first year.

What's the difference between per diem and actual expense method for meals?

Per diem method: Use the IRS standard meal rate for your assignment location ($74/day standard, $86/day high-cost areas in 2026). Deduct 50% of that rate for each work day. No receipts needed — just log your work days. Actual method: Keep every meal receipt and deduct 50% of actual costs. Per diem is easier and often more generous than actual spending. You must use the same method for the entire year. If you eat cheaply on assignment, per diem usually gives you a larger deduction.

How much does a CPA cost for locum tenens taxes?

A CPA experienced with multi-state physician returns typically charges $2,000–$5,000 for a full return including federal, Schedule C (or S-Corp 1120-S), and multiple state filings. If a CPA quotes $500, they're likely not handling multi-state correctly. If they quote $10,000, they're overcharging. Locums One provides free tax professional connections — CPAs in our network specialize in multi-state physician filings.

What is the QBI deduction for locum tenens physicians?

The Qualified Business Income (QBI) deduction allows self-employed physicians to deduct 23% of their net business income (increased from 20% under the One Big Beautiful Bill Act, signed July 2025). However, physicians are classified as a Specified Service Trade or Business (SSTB), so the deduction phases out at higher incomes: single filers lose the deduction above ~$250,000 in taxable income; married filing jointly above ~$500,000. At $200K net income, the deduction is $46,000 — saving $14,000–$16,000 in taxes. Maxing your Solo 401(k) can push your taxable income below the phase-out threshold and unlock the full deduction.

How do I compare a W-2 vs. 1099 job offer?

A 1099 rate needs to be 20–25% higher than a W-2 rate to break even after accounting for self-employment tax, lost employer benefits, and health insurance costs. The formula: 1099 break-even rate = W-2 rate × 1.22. However, the 1099 physician has significant advantages: up to $50,000 in business deductions, Solo 401(k) access ($72,000/year vs. $23,500 W-2 limit), and the QBI deduction. At $300/hr 1099 vs. $250/hr W-2, the 1099 physician typically takes home $25,000–$35,000 more per year after all taxes and expenses. Use our free locum tax calculator to model your specific numbers.

The Bottom Line

Locum tenens taxes are more complex than W-2 taxes — but they're also more favorable if you manage them correctly. The combination of deductions, S-Corp election, and Solo 401(k) contributions can produce an effective tax rate that's lower than a W-2 physician earning the same gross income.

The physicians who pay the most in taxes are the ones who don't track expenses, don't pay quarterly, don't elect S-Corp when they should, and don't max their retirement accounts. Every one of those mistakes is avoidable.

The two things that matter most: track every expense from day one, and find a CPA who specializes in 1099 physician income. Everything else flows from those two decisions.

Use our free locum tax calculator to model your take-home by specialty, state, and working weeks. For the full 1099 independent contractor breakdown, see our independent contractor guide. For current pay rates by specialty, see our 2026 Locum Tenens Salary Guide. For contract protections before your first assignment, see our contract negotiation guide. For specialty-specific tax and rate considerations, see our guides on emergency medicine locums and cardiac anesthesia locums.

*This guide is for educational purposes and does not constitute tax advice. Tax laws change annually. Consult a CPA or tax professional for advice specific to your situation. All rates, thresholds, and limits are based on 2026 tax law including provisions from the One Big Beautiful Bill Act (signed July 2025). Some 2026 figures (Solo 401(k) limits, standard deduction, HSA limits, mileage rate, QBI phase-outs) are based on IRS announcements and inflation-adjusted projections — verify current-year figures at irs.gov before filing.*

*Need a CPA who understands locum tenens taxes? We connect physicians with specialized tax professionals for free — no strings attached.*