The Complete
Locum Tenens Tax Guide

When you work locum tenens, you're not an employee—you're an independent contractor. This single distinction changes everything about how you're taxed. Instead of receiving a W-2 with taxes already withheld from each paycheck, you'll receive a 1099-NEC (Nonemployee Compensation) form from each agency or facility that paid you $600 or more during the tax year.

The 1099 reports gross payments. No taxes have been withheld. No Social Security contributions have been made on your behalf. No Medicare taxes have been paid. All of that is now your responsibility—and if you don't plan for it, you'll find yourself facing a five or six-figure tax bill with no money set aside to pay it.

Note that some agencies engage locum physicians as W-2 employees, and many physicians receive both a W-2 and a 1099 in the same year from different assignments. The distinction matters enormously: 1099 income is subject to self-employment tax, but it also unlocks business deductions, S-Corp structuring, and high-limit retirement plans that W-2 income does not.

Self-Employment Tax: The 15.3% You Can't Avoid

The most significant tax difference between W-2 employment and 1099 work is the self-employment tax. As a W-2 employee, you pay 7.65% of your wages toward Social Security (6.2%) and Medicare (1.45%), while your employer pays an additional 7.65% on your behalf. You never see your employer's half—it's simply part of the cost of employing you.

As a self-employed locum physician, you pay both halves: the full 15.3% on your net self-employment income up to the Social Security wage base ($184,500 for 2026), plus 2.9% Medicare tax on all income above that threshold. If your net income exceeds $200,000 ($250,000 married filing jointly), you'll also pay an additional 0.9% Medicare surtax.

1099 vs. W-2: A Side-by-Side Comparison

Understanding the full scope of differences helps you plan appropriately:

The Silver Lining: Deductions and Flexibility

The higher tax burden of self-employment comes with significant advantages. As an independent contractor, you gain access to deductions that W-2 employees lost after the 2017 Tax Cuts and Jobs Act. Travel expenses, home office costs, professional licensing, continuing education, malpractice insurance, and dozens of other legitimate business expenses become deductible. You also gain access to retirement plans with significantly higher contribution limits than traditional 401(k) plans.

Perhaps most importantly, you can elect to have your business taxed as an S-Corporation—a strategy that can legitimately reduce your self-employment tax by tens of thousands of dollars annually. We'll cover this in detail in Section 5.

So what does all of this mean in dollars? Take a locum physician netting $250,000 of 1099 income with no entity, no retirement plan, and only basic deductions. Self-employment tax runs roughly $24,000–$27,000. Federal income tax (single filer, standard deduction, after the deduction for half of SE tax) adds roughly $45,000–$50,000. State income tax adds anywhere from $0 (Texas or Florida tax home, no-tax assignment states) to $15,000–$20,000+ in a state like California or New York.

Call it $70,000–$95,000 in total tax — an effective rate of roughly 28–38% — leaving take-home pay of about $155,000–$180,000. That's the unplanned baseline. Every strategy in this guide moves that number in your favor: a maxed Solo 401(k) alone can cut the bill by $25,000+, an S-Corp election can save another $15,000–$25,000, and properly documented travel deductions stack on top.

Want your own numbers instead of ranges? Run your income through our 1099 physician tax calculator to see your estimated federal, state, and self-employment tax — and what an S-Corp election would change.

The IRS doesn't wait until April to collect taxes—they expect payment as you earn income throughout the year. If you expect to owe $1,000 or more when you file your annual return (and as a locum physician, you almost certainly will), you're required to make quarterly estimated tax payments using Form 1040-ES.

Missing these payments or paying too little triggers underpayment penalties. The penalty rate fluctuates with interest rates and is adjusted quarterly (6% annualized as of mid-2026). More importantly, failing to plan for quarterly payments often leads to cash flow crises when physicians suddenly need to write a large check they weren't expecting.

Quarterly Payment Schedule

The IRS quarters don't align with calendar quarters. Pay close attention to these deadlines:

How to Calculate Your Quarterly Payments

There are two safe harbor methods to avoid underpayment penalties:

Method 1: Pay 100% of last year's tax liability (110% if your AGI exceeded $150,000). Divide last year's total tax by four and pay that amount each quarter. This works well if your income is relatively stable year-over-year.

Method 2: Pay 90% of your current year's tax liability. This requires estimating your income and deductions for the current year, calculating the approximate tax, and paying at least 90% of that amount across your quarterly payments.

Because locum income is rarely even across the year—a high-paying Q1 assignment may not repeat in Q3—the annualized installment method (Form 2210 Schedule AI) can lower your required Q1 and Q2 payments when income is back-loaded. It calculates each quarter's obligation from income actually earned in that quarter rather than assuming an even split.

Tax deductions are where locum physicians can dramatically reduce their tax burden. Every legitimate business expense reduces your taxable income dollar-for-dollar—and when you're in a 32% or 35% federal bracket plus state taxes plus self-employment tax, a $10,000 Schedule C deduction saves you $4,000 to $5,400 in real money. Schedule C deductions are more valuable than itemized deductions because they reduce both income tax and the 15.3% self-employment tax.

The key to maximizing deductions is documentation. The IRS can disallow any deduction you can't prove with receipts, records, or logs. Develop systems from day one: use a dedicated business credit card, keep digital copies of all receipts, maintain a mileage log, and track your days worked in each location.

Travel Expenses

Travel deductions are typically the largest category for locum physicians. However, they're also the most complex and the area where mistakes are most common. Here's what you need to understand:

The Tax Home Requirement

You can only deduct travel expenses if you're traveling away from your tax home. Your tax home is generally the metropolitan area where you conduct a substantial portion of your business or where your main place of work is located. For most locum physicians, this is the city where they maintain a permanent residence and return between assignments.

If you don't have a fixed residence—if your family travels with you and you move from assignment to assignment without a home base—the IRS may consider you "itinerant," meaning your tax home is wherever you're currently working. This eliminates travel deductions entirely because you're never "away from home." We cover this in more depth in Section 7 and in our dedicated tax home guide for traveling physicians.

Deductible Travel Costs

When traveling away from your tax home for work, you can deduct:

• Transportation: Airfare, train tickets, rideshares, rental cars, or mileage if driving your own vehicle. For 2026, the standard mileage rate is 72.5 cents per mile. You can alternatively deduct actual vehicle expenses (gas, maintenance, depreciation) but must choose one method and apply it consistently.
• Lodging: Hotels, Airbnbs, and extended-stay housing costs when away from your tax home. Housing on a three-month assignment can easily run $5,000–$15,000, all deductible. The accommodations must be reasonable for the location—a standard hotel room is fine, but a luxury penthouse suite may raise audit flags. If your agency pays a housing stipend, the stipend is taxable income, but your actual housing costs are deductible against it.
• Meals: You can deduct 50% of actual meal costs with receipts, or use the federal per diem rate for your work location. The per diem method is often simpler and may yield higher deductions in expensive cities.
• Incidentals: Tips, laundry, dry cleaning, parking, tolls, and similar costs incurred while traveling.

Home Office Deduction

Many locum physicians assume they can't claim a home office deduction because they work at hospital facilities. This is incorrect. If you use a dedicated space in your home exclusively and regularly for business activities, you qualify for the deduction.

Qualifying home office activities for locum physicians include: administrative work (responding to emails, managing contracts, handling credentialing paperwork), scheduling and coordinating assignments, continuing medical education, chart reviews and documentation, telemedicine consultations, and any other business-related tasks.

You have two methods to calculate the deduction:

• Simplified Method: Deduct $5 per square foot of your home office, up to a maximum of 300 square feet ($1,500 maximum deduction). This requires minimal record-keeping.
• Regular Method: Calculate the percentage of your home used for business and deduct that percentage of actual home expenses including rent or mortgage interest, utilities, insurance, repairs, and depreciation. This requires detailed records but often yields higher deductions.

Professional Expenses

All ordinary and necessary expenses for maintaining your medical practice are deductible:

• Licensing: State medical license fees for every state where you're licensed—locum physicians often hold 5–15 licenses at $300–$1,000+ each—plus DEA registration, board certification and recertification fees, and hospital credentialing costs
• Malpractice Insurance: Premiums for any malpractice coverage you pay yourself, including tail coverage. Most agencies provide coverage (which isn't deductible to you), but any supplemental or umbrella policy you carry is deductible
• Continuing Medical Education: CME courses, conferences, subscriptions to medical journals, and related travel expenses
• Professional Memberships: AMA, specialty societies, and other professional organization dues
• Equipment and Supplies: Stethoscopes, medical bags, scrubs and lab coats (if not provided), reference books, and medical apps. Items under $2,500 can be expensed immediately under the de minimis safe harbor; larger purchases qualify for Section 179 expensing or bonus depreciation
• Business Services: Accounting and tax preparation fees, legal fees for business matters (contract review, entity formation), practice management software, and the business-use percentage of your phone and internet

Health Insurance Deduction

Self-employed individuals can deduct 100% of health insurance premiums for themselves, their spouse, and dependents. This includes medical, dental, and vision insurance. Unlike most deductions, this is an "above-the-line" deduction that reduces your adjusted gross income (AGI), which can have positive downstream effects on other tax calculations.

You can also deduct qualified long-term care insurance premiums, subject to age-based limits that increase each year.

The Full Deduction Table for 1099 Physicians

Here is the complete list in one place—what each deduction is typically worth per year for a full-time locum physician, and what to watch for:

Audit-Proofing Your Deductions

High-income returns attract IRS scrutiny, and physicians with 1099 income and significant Schedule C deductions sit in a higher-audit-risk category. The difference between a routine audit and a devastating one is documentation: every deduction must be substantiated with records showing the amount, date, business purpose, and relationship to your medical practice.

• Use a separate business bank account and credit card. Commingling personal and business expenses is the fastest way to lose deductions in an audit. Every business expense should flow through a dedicated account.
• Scan receipts immediately. Use a receipt-capture app or your accounting software. Paper receipts fade and get lost; digital records are accepted by the IRS and far easier to organize.
• Log mileage in real time. Use a GPS-based mileage app. Reconstructed mileage logs are the most commonly disallowed deduction in audits.
• Document the business purpose of meals. Note who you met, what you discussed, and the business relationship. A credit card receipt alone is not sufficient substantiation.
• Keep records for at least 7 years. The IRS has 3 years to audit a filed return (6 years if income is understated by 25%+). Seven years covers amended returns and carryforward items too.

Choosing the right business structure can save you tens of thousands of dollars annually—or cost you thousands if you choose wrong. This section explains the mechanics, the math, and the decision framework.

Sole Proprietorship: The Default

When you start working as an independent contractor without forming any business entity, you're automatically a sole proprietor. There's no paperwork required, no separate tax return, and no additional complexity. You simply report your income and expenses on Schedule C of your personal tax return.

The downside: every dollar of net profit is subject to the full 15.3% self-employment tax. On $300,000 of net locum income, that's approximately $35,000 in self-employment tax before you even calculate income tax.

S-Corporation Election: The Tax Optimization Strategy

An S-Corporation isn't actually a type of corporation—it's a tax election. You can form an LLC and elect to have it taxed as an S-Corp, which gives you both the liability protection of an LLC and the tax benefits of S-Corp treatment.

Here's how it works: Instead of all your income being subject to self-employment tax, you split your earnings into two categories:

• Reasonable Salary: You pay yourself a W-2 salary that's subject to payroll taxes (the equivalent of self-employment tax). This salary must be "reasonable" for the work you perform—meaning you can't pay yourself $50,000 when similar physicians earn $200,000.
• Distributions: Any profit remaining after your salary is distributed to you as the shareholder. Distributions are subject to income tax but NOT self-employment tax.

The self-employment tax savings come from the portion of your income that's classified as distributions rather than salary.

When Does S-Corp Election Make Sense?

S-Corp election isn't free. You'll incur additional costs for payroll processing (typically $1,000-$3,000 annually), a separate corporate tax return (Form 1120-S), and potentially higher accounting fees. You'll also need to navigate reasonable compensation requirements and maintain proper corporate formalities.

The general rule of thumb: S-Corp election typically becomes beneficial when your net self-employment income exceeds $80,000 to $100,000 annually. Below that threshold, the tax savings may not outweigh the additional costs and complexity. For most full-time locum physicians, you cross this threshold within the first few months of the year.

For physicians earning $200,000 or more in locum income, S-Corp election almost always makes sense—the savings can easily exceed $15,000 to $25,000 per year, dwarfing the administrative costs.

Election Deadlines and Late Relief

File Form 2553 within 2 months and 15 days of the start of the tax year you want the election to apply (March 15 for existing calendar-year entities), or within 75 days of forming a new LLC. Missed the window? Late elections are frequently granted under Rev. Proc. 2013-30, but they require additional paperwork and a reasonable-cause statement—don't count on it as a plan.

Reasonable Compensation for Physicians

The IRS scrutinizes physician S-Corps. Your salary must reflect what you would earn in a similar W-2 role for your specialty, hours, and geography. Use MGMA, BLS, and specialty-specific compensation surveys to document how you set the number, and keep that documentation with your corporate records. A locum anesthesiologist paying themselves $80,000 while netting $500,000 invites reclassification, back payroll taxes, penalties, and interest. The right salary is a defensible one—not the lowest one a payroll service will process.

Multi-state taxation is where locum tenens taxes get genuinely complicated—and where most general-practice CPAs (and tax software) make mistakes. If you work in multiple states, which most locum physicians do, you need to understand how this works.

The Basic Rule: You Pay Where You Work

As a general principle, states have the right to tax income earned within their borders. If you work a three-month assignment in California, California can tax that income—even if you live in Texas and will never set foot in California again.

This means a typical locum physician files:

• One federal return
• One resident state return (your home state) reporting all income from everywhere
• Multiple nonresident state returns (one for each state where you worked) reporting only the income earned in that state

Your resident state typically gives you a credit for taxes paid to other states, so you don't pay state tax twice on the same income. However, you effectively pay the higher of the two rates: if you live in a high-tax state but work in low-tax states, you'll still owe your resident state the difference—and if your home state has no income tax, a high-tax assignment state's bill arrives with no offsetting credit benefit at home.

States Without Income Tax

Seven states don't impose an individual income tax, making them particularly attractive for locum assignments:

Tennessee and New Hampshire only tax investment income, not earned income, so locum income in those states is also state tax-free.

If you live in one of these states and work assignments in other no-tax states, you can significantly reduce your overall state tax burden. This is one reason why Texas and Florida are popular home bases for traveling physicians.

Reciprocity Agreements

Some neighboring states have reciprocity agreements, meaning residents of one state who work in the other only pay tax to their home state. Examples include Virginia/DC/Maryland, the Illinois/Iowa/Kentucky/Michigan/Wisconsin cluster, and Pennsylvania/New Jersey. If your assignments fall within reciprocity states, you may avoid filing nonresident returns entirely—file the appropriate exemption certificate (such as Virginia's VA-4) with each facility.

One important caveat: reciprocity agreements generally cover wage and salary (W-2) income only. If your locum income is paid on a 1099, reciprocity typically does not exempt you from the nonresident filing requirement.

High-Tax States to Watch

Some states deserve special attention due to aggressive tax policies or high rates:

• California: Has both high tax rates (up to 13.3%) and aggressive enforcement. California often requires 7% withholding on payments to nonresident independent contractors. If you take California assignments, expect additional complexity.
• New York: High rates (up to 10.9%) plus New York City imposes its own income tax on residents.
• Oregon: No sales tax but high income tax rates (up to 9.9%).
• Minnesota: Relatively high rates and comprehensive taxation of nonresident income.

S-Corp and Multi-State Considerations

If you operate through an S-Corp, the multi-state picture adds a layer: you may need to register the entity as a foreign entity in states where you work, file annual reports, and pay minimum franchise taxes (California charges $800 per year regardless of income). Your CPA needs to track state nexus for the entity, set quarterly estimates in each state, and file nonresident returns at year-end. Budget additional tax prep cost per state on top of your federal return—and factor that into the S-Corp break-even math.

Every travel deduction in this guide—lodging, meals, mileage, per diem—depends on one thing: maintaining a valid tax home. Your tax home is your regular place of business or abode "in a real and substantial sense" under IRC Section 162(a). Keep a permanent residence you pay for, return to it between assignments, and keep each assignment temporary (generally expected to last under one year). Lose your tax home—by going fully itinerant or letting an assignment become indefinite—and the IRS can disallow every travel deduction you've claimed.

The rules around duplicated living expenses, the one-year rule, and dual-physician households deserve their own deep dive. Read our complete guide to tax home rules for locum tenens physicians before you structure your assignments.

Retirement contributions are arguably the single most powerful tax reduction strategy available to self-employed physicians. Every dollar contributed to a qualified retirement plan is deducted from your taxable income, grows tax-deferred (or tax-free in a Roth), and allows you to build wealth while reducing current-year taxes.

Self-employed individuals have access to retirement plans with dramatically higher contribution limits than traditional employer-sponsored 401(k) plans. Understanding your options lets you shelter $50,000 to $72,000+ annually from taxes.

Solo 401(k): The Best Option for Most Locum Physicians

A Solo 401(k)—also called an Individual 401(k) or Self-Employed 401(k)—is specifically designed for business owners with no full-time employees other than themselves and their spouse. It offers the highest contribution limits and greatest flexibility.

2026 Contribution Limits:

• Employee Deferrals: Up to $24,500 ($32,500 if age 50+ due to catch-up contributions)
• Employer Contributions: Up to 25% of net self-employment income (for sole proprietors) or 25% of W-2 compensation (for S-Corp owners)
• Total Maximum: $72,000 ($80,000 if age 50+)

Additional benefits of Solo 401(k) plans include Roth contribution options (allowing after-tax contributions that grow tax-free), loan provisions that let you borrow from your own account, and the ability to make both traditional and Roth contributions in the same year. Unlike a SEP-IRA, a Solo 401(k) also doesn't interfere with the pro-rata rule, leaving your backdoor Roth IRA strategy intact.

SEP-IRA: The Simpler Alternative

A SEP-IRA (Simplified Employee Pension) is easier to set up and administer than a Solo 401(k). It allows employer contributions of up to 25% of net self-employment income, with the same $72,000 maximum for 2026.

The key advantages of a SEP-IRA are simplicity and flexibility. You can establish and fund a SEP-IRA all the way up to your tax filing deadline, including extensions. There's minimal paperwork and no annual reporting requirements.

However, SEP-IRAs have significant limitations: no employee deferrals (only employer contributions), no Roth option, no loan provisions, and the contribution is capped at 25% of compensation—meaning you need roughly $288,000 in net income to reach the $72,000 maximum. A SEP-IRA also counts as a traditional IRA for the pro-rata rule, which can quietly torpedo your backdoor Roth. For most high-earning locum physicians, the Solo 401(k) is the superior choice.

Contribution Strategy for S-Corp Owners

If you've elected S-Corp taxation, your retirement contribution math changes. Your "reasonable salary" becomes the basis for calculating contributions:

• Employee Deferrals: Up to $24,500 of your W-2 salary
• Employer Contributions: Your S-Corp can contribute up to 25% of your W-2 salary

Example: If your reasonable salary is $190,000, your S-Corp can contribute $47,500 as an employer contribution (25% of $190,000), and you can defer an additional $24,500 from your salary, totaling $72,000 in retirement contributions.

Physicians looking to shelter more than the Solo 401(k) limit can layer a defined benefit or cash balance plan on top, potentially sheltering $150,000–$300,000+ per year depending on age and income.

The Augusta Rule (Section 280A)

If you have an S-Corporation, there's an often-overlooked strategy that can generate tax-free income: the Augusta Rule, named for the Masters golf tournament in Augusta, Georgia, where homeowners rent their homes to visitors during the event.

Under Internal Revenue Code Section 280A(g), you can rent your personal residence to your business for up to 14 days per year and receive that rental income completely tax-free. It doesn't need to be reported on your tax return. Meanwhile, your S-Corporation deducts the rental payment as a legitimate business expense.

The key requirements are that the rental must be at fair market value for comparable meeting or event space in your area, the rental must have a legitimate business purpose (board meetings, planning sessions, team gatherings), and you must document everything with rental agreements, meeting minutes, and comparable rental rate research.

Example: If comparable meeting space in your area rents for $500 per day, and you hold 14 business meetings at your home annually, that's $7,000 in tax-free income to you and a $7,000 deduction for your corporation.

Qualified Business Income (QBI) Deduction

The Section 199A Qualified Business Income deduction allows eligible self-employed individuals to deduct up to 23% of their qualified business income (increased from 20% to 23% by the OBBBA starting in 2026). However, physicians face significant limitations.

Medical services are classified as a "specified service trade or business" (SSTB), which means the QBI deduction phases out at higher income levels. For 2025, the deduction began phasing out at taxable income of $197,300 (single) or $394,600 (married filing jointly) and was completely eliminated at $247,300/$494,600; these thresholds are indexed annually.

If your taxable income falls below these thresholds—perhaps due to large retirement contributions or other deductions—you may still benefit from the QBI deduction. This is another reason why maximizing retirement contributions can be doubly valuable: they reduce your taxable income directly AND may unlock QBI deduction benefits.

Pass-Through Entity Tax (PTET)

Many states allow a pass-through entity (your S-Corp or LLC) to pay state income tax at the entity level, converting a capped personal SALT deduction into a fully deductible business expense. For locum physicians operating through an entity in PTET states, this can recapture thousands of dollars of otherwise-lost state tax deductions—especially valuable at higher incomes where the SALT cap binds.

After years of working with locum physicians, we've seen the same costly mistakes repeated over and over. Here are the most common errors and how to avoid them:

1. Not Making Quarterly Estimated Payments

The underpayment penalty is avoidable. Set up automatic transfers to a tax savings account and make quarterly payments religiously. The penalty isn't catastrophic, but it's completely unnecessary money thrown away.

2. Missing Deductions Due to Poor Record-Keeping

The IRS can disallow any deduction you can't substantiate. Use a dedicated business credit card, keep digital copies of receipts, maintain a mileage log app on your phone, and track your work calendar meticulously. The 10 minutes per week you spend on record-keeping can save thousands in lost deductions.

3. Choosing the Wrong Business Structure

Staying a sole proprietor when you should be an S-Corp costs high earners $15,000-$30,000 annually in excess self-employment tax. Conversely, forming an S-Corp prematurely when your income doesn't justify the complexity wastes money on unnecessary administrative costs. Get professional advice before making this decision.

4. Ignoring Multi-State Filing Obligations

States share information with each other and with the IRS. If you work in a state and don't file a return there, they will eventually notice—and the penalties, interest, and back taxes add up quickly. File in every state where you're required to, no exceptions.

5. Missing Retirement Contribution Deadlines

The December 31 deadline for establishing a Solo 401(k) catches physicians every year. If you're considering a Solo 401(k), set it up in October or November—don't wait until Christmas week and risk missing the deadline due to paperwork delays.

6. DIY Tax Preparation When You Need Professional Help

Multi-state filing, S-Corp taxation, reasonable compensation analysis, QBI calculations, and retirement plan optimization are genuinely complex. TurboTax can handle a simple W-2 return, but locum physician taxes require expertise. The cost of a CPA who specializes in locum tenens physicians is almost always less than the cost of mistakes.