Can an agency call me 1099 even though I have almost no control over my schedule?

The label on your contract doesn't control your tax classification, the facts do. If the agency (or the facility) dictates your shift schedule, requires you to follow their specific procedures, provides your equipment and support staff, and restricts you from declining assignments, those facts point toward employee status under IRS common-law rules, regardless of what the contract calls you. Misclassification exposes the agency to back payroll taxes and exposes you to complications if you've been deducting business expenses as if you were self-employed. If your day-to-day control looks like an employee's, it's worth having a professional review the specific facts before you rely on the 1099 label.

Are per diem payments from my agency taxable?

It depends entirely on how the payment is structured, not on what the agency calls it. A per diem paid under an accountable-plan-style arrangement, tied to documented business expenses like lodging and meals while you're away from your tax home, and not exceeding the federal per diem rate, is generally not taxable income. A flat stipend added to your check with no substantiation requirement, no expense reporting, and no obligation to return unused amounts is generally treated as additional taxable compensation, even if the agency labels it 'per diem' or 'reimbursement.' Read the actual mechanics in your contract, not the label on the line item.

What's the difference between W-2 and 1099 locum contracts?

Under a W-2 arrangement, the agency is your employer: it withholds income and payroll taxes, typically carries your malpractice coverage, and directs more of your day-to-day work. Under a 1099 arrangement, you're treated as an independent contractor: no withholding, you're responsible for self-employment tax and quarterly estimated payments, and you generally have more latitude to deduct business expenses (travel, licensing, home office, and more, especially if you route income through an S-Corp with an accountable plan). Neither structure is universally better; the right one depends on your expense profile, your appetite for the administrative overhead of running a business, and how much control the agency actually exercises over your work.

Who pays for malpractice tail coverage if I switch agencies mid-contract?

This should be spelled out explicitly in your contract, and often it isn't. Claims-made malpractice policies require tail coverage to close out claims filed after the policy ends but arising from care you provided while it was active. If the contract is silent on who buys the tail, and you assume the agency covers it while the agency assumes you do, you can end up personally on the hook for a tail premium that runs into the thousands of dollars, discovered only when you try to start your next assignment. Always get tail coverage responsibility in writing before you sign, not after the assignment ends.

Does a non-compete clause in my locum contract affect my taxes?

Not directly, but it affects the business structure decisions that drive your tax outcome. A broad non-compete or non-solicitation clause can restrict which facilities or agencies you can work with after the contract ends, which limits your ability to run multiple simultaneous income streams, take direct-hire opportunities, or build the kind of diversified 1099 income base that makes an S-Corp election and accountable plan worthwhile. Before you sign, understand exactly what the clause restricts, for how long, and in what geographic radius, because it shapes what your tax and entity strategy can realistically accomplish over the following months.

W-2/1099

Locum Tenens Deep Dive

Locum Tenens Agency Contracts: W-2 vs. 1099 Red Flags

Many agencies offer the same assignment as W-2 or 1099. The label on page one doesn't decide your tax outcome; the clauses on pages three through twelve do.

12 min read Updated June 2026 By Bryan Martin, CPA

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TL;DR: Read the Contract, Not the Label

Most locum staffing agencies will offer you the exact same assignment as either a W-2 employee or a 1099 independent contractor, and the pay rate difference alone is not enough information to choose correctly. What actually determines your tax outcome is buried in the contract language: whether your "per diem" or "reimbursement" line item is a taxable flat stipend or a true tax-free expense reimbursement, who actually controls your schedule (which affects whether the 1099 label even holds up), who's responsible for malpractice tail coverage, and whether a non-compete clause limits your ability to build multiple income streams. Read those four things before you look at the headline pay rate.

Locum staffing agencies compete for physicians, and increasingly that means offering flexibility on how you're paid: W-2 with benefits and withholding, or 1099 with a higher headline rate and no withholding. Both can be legitimate. The problem is that agencies write contracts to protect the agency, not to optimize your tax position, and the same contract template gets reused across W-2 and 1099 versions of the same job with only the classification paragraph changed.

That means the reimbursement language, the malpractice clause, and the scheduling-control language often don't get updated to match the classification, which is exactly where physicians get surprised at tax time. This guide is the deep-dive expansion of a warning we give every locum client: agency reimbursements are not automatically tax-free just because the agency calls them a reimbursement. Below, we walk through exactly what to check before you sign.

This guide is educational and not individualized tax advice. Contract terms and worker-classification facts vary by agency and assignment; have your specific contract reviewed before you sign or rely on any classification.

What to Look For in a 1099 Locum Contract

Three clauses that determine whether the 1099 label actually holds up

1. How reimbursements are structured

This is the clause that costs locum physicians the most money, and it's covered in depth in Section 2 below. In short: look for whether your travel and lodging money is described as a fixed stipend added to your 1099 pay (taxable, full stop) or a true expense reimbursement tied to receipts and a documented business purpose (potentially tax-free). The word "reimbursement" appears in both versions of the contract. Only the mechanics tell you which one you actually have.

2. Who's responsible for malpractice coverage

Under a W-2 arrangement, the agency almost always carries your malpractice policy. Under a 1099 arrangement, this is negotiable, and contracts vary widely: some agencies still cover the base policy but push tail coverage onto you, others cover neither. A missing or ambiguous malpractice clause is one of the most expensive gaps in a locum contract, because tail coverage on a claims-made policy can run into five figures and is easy to overlook until you're already between assignments and need it.

3. Who controls your schedule

This one doesn't just affect convenience, it affects whether the 1099 classification is defensible at all. The IRS looks at behavioral control (who decides your hours, methods, and procedures), financial control (who bears the risk of profit or loss, who provides equipment), and the relationship between the parties (is the work an ongoing, integral part of the facility's operations). A contract that calls you a 1099 contractor but requires you to work assigned shifts set by the facility, follow facility-dictated procedures with no discretion, and forbids you from declining shifts without penalty is describing an employee relationship in independent-contractor language. That mismatch is a risk to the agency (back payroll taxes) and a risk to you (if the arrangement is later reclassified, expenses you deducted as a self-employed contractor may be challenged).

None of these three items show up in the pay-rate comparison agencies lead with. A $15/hour higher 1099 rate can be worth less than a lower W-2 rate once you account for self-employment tax, lost benefits, and a reimbursement structure that turns out to be fully taxable.

The 'Agency Reimbursement' Trap, In Depth

Why the word 'reimbursement' on your contract doesn't guarantee tax-free treatment

We flag this for every locum client we work with: if your agency reimburses you for travel expenses, you cannot also deduct those same expenses, and the reimbursement itself may or may not be taxable income, depending entirely on how it's structured. Most physicians assume "my agency covers my travel" means that money is a wash, tax-neutral either way. That assumption is wrong often enough to matter.

The accountable-plan mechanics behind the label

For any reimbursement arrangement to produce genuinely tax-free income, it generally needs to function like an accountable plan: the payment has to be tied to a documented, substantiated business expense, you generally need to provide receipts or an accounting of the expense within a reasonable time, and any excess above the actual expense generally has to be returned. When a reimbursement arrangement meets that structure, it isn't included in your taxable income at all.

A flat per diem or stipend added to your 1099 pay, with no documentation requirement and no obligation to return unused amounts, doesn't meet that standard. It's just additional compensation wearing a reimbursement label. It shows up on your 1099-NEC (or gets folded into your gross pay) as taxable income, and you're still responsible for self-employment tax on it, whether or not you actually spent it on travel.

	True Expense Reimbursement	Flat Stipend Labeled 'Reimbursement'
How it's structured	Tied to substantiated, documented expenses (receipts, mileage logs, lodging invoices)	Fixed dollar amount added to pay, no documentation required
Tax treatment	Generally not taxable income	Generally taxable income, subject to self-employment tax
Can you also deduct the underlying expense?	No, you'd be double-dipping	N/A, you never got a tax-free reimbursement to begin with
What the contract usually calls it	"Expense reimbursement," "reimbursed per receipts"	"Per diem," "housing stipend," "travel allowance"

Same word, different mechanics

Agencies frequently use the word "reimbursement" for both structures. The only way to know which one you're signing is to read whether the clause requires you to submit receipts or an expense report, and whether unused amounts have to be returned. If the contract just states a flat dollar figure per week with no substantiation language, treat it as taxable compensation, not a tax-free reimbursement, for planning purposes.

This is also where an S-Corp and a properly documented accountable plan can help 1099 locum physicians specifically: if your agency pays you a flat 1099 rate with no formal reimbursement structure at all, you can still run your actual travel, lodging, and licensing expenses through your own S-Corp's accountable plan and get the tax-free treatment that way, on the expenses you can substantiate. See our Accountable Plan guide for how that mechanism works.

Not sure what your reimbursement clause actually does?

Send us your contract before you sign. We'll tell you in plain English whether your "reimbursement" line item is tax-free money or a taxable stipend in disguise, and what that means for your take-home pay.

Have Us Review Your Contract

Red-Flag Contract Clauses That Cost You at Tax Time

A checklist of the language that should make you slow down before signing

These four clause types show up repeatedly in locum contracts we review, and each one has cost a client real money after the fact.

Vague expense language

A line that says "agency provides travel allowance of $X/week" with no mention of receipts, substantiation, or return of excess.

Costs you: Treats a would-be tax-free reimbursement as taxable stipend income

No clarity on 1099 vs. W-2 classification

Boilerplate that never states which classification applies, or uses both terms inconsistently across the document (e.g., 'employee' language in a section of a contract labeled 1099).

Costs you: Uncertainty about self-employment tax exposure and deduction eligibility

Broad non-compete or non-solicitation clauses

Language restricting you from working with the same facility, or any facility in a wide radius, directly or through another agency, for months after the contract ends.

Costs you: Limits your ability to establish multiple income streams and structure an entity around diversified 1099 income

Unclear malpractice tail coverage responsibility

The contract mentions malpractice coverage during the assignment but is silent, or ambiguous, on who buys tail coverage when the assignment or policy ends.

Costs you: A five-figure surprise bill you assumed the agency would cover

Taxstra Tip

If any of these four items is missing entirely from the contract, that's a red flag on its own. Silence in a contract almost always resolves in the drafting party's favor, which is the agency, not you.

Not Sure What Your Contract Actually Says?

We'll walk through your reimbursement clause, classification language, and coverage terms, and tell you in plain English what it means for your tax bill, before you sign.

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No obligation • Takes 30 minutes • Done over the phone

Questions to Ask Before Signing

Print this before your next contract call

Bring this list to your next call with agency staffing or credentialing. A recruiter who can't answer these clearly is telling you something.

1.Is this assignment being offered as W-2, 1099, or my choice of either, for the exact same role and rate?
2.Does the "reimbursement" or "per diem" line require me to submit receipts or an expense report, or is it a flat amount paid regardless of what I spend?
3.If I don't spend the full per diem, do I keep the difference, or is it returned? (If I keep it with no accounting, expect it to be taxable.)
4.Who carries my malpractice policy during the assignment, and who is responsible for tail coverage when it ends?
5.Who sets my shift schedule, and can I decline a shift without penalty?
6.Does this contract include a non-compete or non-solicitation clause? What facilities, geographic radius, and time period does it cover?
7.If I'm 1099, will I receive a 1099-NEC that includes any stipend or per diem amounts, or are those reported separately?
8.Does the agency provide equipment, EMR access, and support staff, or am I expected to supply my own?
9.Is there a minimum guaranteed number of hours or shifts, or can the assignment be shortened or canceled unilaterally?
10.Has legal or tax counsel reviewed this specific contract, or is it the agency's standard template?

Questions 2 and 3 alone determine whether your reimbursement is tax-free. Get the answer in writing, ideally as contract language, not a verbal assurance from a recruiter.

Frequently Asked Questions

Related Resources

Locum Tenens Tax Guide

The full pillar guide to 1099 locum tax planning, travel deductions, and per diem rules.

Accountable Plan Guide

How S-Corp physicians reimburse themselves for business expenses tax-free.

Locum Tenens Tax Home Guide

How your tax home determines which travel expenses are deductible at all.

Don't Sign a Six-Figure Contract Without a Tax Read.

We work exclusively with physicians. Before you sign your next locum agreement, we'll tell you exactly what it means for your taxes, your deductions, and your bottom line.

Book a Free Consultation

No obligation • Takes 30 minutes • Done over the phone