What the 2025 Tax Law Changed for Physicians

For a hospital-employed physician, the biggest change is the one that did not happen. The tax brackets and standard deduction were scheduled to revert in 2026, which would have pushed most physician households into higher rates. The 2025 law made them permanent, so 2026 planning starts from the same rate structure you have had since 2018, adjusted for inflation.

The second change is the SALT cap. If your household MAGI is under $505,000 in 2026, you can deduct up to $40,400 of state and local taxes if you itemize. Between $505,000 and about $606,333 the cap shrinks, and above that you are back to $10,000. In high-tax states, that range is where many dual-physician households sit.

Two headline deductions usually do not help physicians. Overtime: the overtime deduction covers only overtime premiums the Fair Labor Standards Act requires, and licensed physicians and medical residents are generally exempt from FLSA overtime under the learned-professional rules, even when paid hourly or for extra shifts. Tips: medicine is a specified service field, so tips in a health practice do not qualify.

Unreimbursed employee expenses also stay gone for good. License renewals, board certification, DEA registration and CME you pay yourself as a W-2 employee are not deductible federally. The practical fix is to ask your employer to reimburse them under an accountable plan or through a CME allowance.

One 2026 change that is not from the 2025 law: if you are 50 or older and earned more than $150,000 of FICA wages from your employer in 2025, your 2026 catch-up contributions must go in as Roth. See our physician retirement plan guide for how that interacts with the rest of your plan stack.

The QBI deduction (up to 20% of qualified business income) was set to expire after 2025. It is now permanent. Because medicine is a specified service trade or business, physicians get the full deduction only when taxable income is below the threshold ($201,750 single, $403,500 joint in 2026), and nothing once income passes the top of the phase-in range. The 2025 law widened that range by half, so in 2026 it runs to $276,750 single and $553,500 joint. A 1099 physician just over the threshold keeps noticeably more of the deduction than under the old $100,000 joint range.

The SALT workaround for owners survived. Early drafts of the bill would have limited pass-through entity tax (PTET) elections for specified service businesses like medical practices. The final law did not. An S corp or partnership practice in a PTET state can still pay state income tax at the entity level and deduct it federally, outside the individual cap. Because PTET lowers the income that flows to your return, it also lowers the MAGI that drives the new SALT phasedown. Our PTET guide walks through the state elections.

For practice purchases, 100% bonus depreciation is back for equipment acquired after January 19, 2025, and Section 179 allows up to $2,560,000 of expensing in 2026. Separately, a practice now issues Form 1099-NEC only to contractors paid $2,000 or more during 2026, up from $600.

Physicians with modest side income (a few thousand dollars of 1099 consulting or expert witness work) may benefit from the new $400 minimum QBI deduction starting in 2026, if they have at least $1,000 of qualified business income from a business in which they materially participate and their income is low enough for the specified service rules to allow it.

The phasedown takes back 30 cents of SALT deduction for every dollar of MAGI over $505,000 in 2026, until the cap hits the $10,000 floor. If you itemize and pay more state and local tax than your cap, that clawback adds 30% of your bracket rate on every dollar in the band: 41.6% effective at a 32% bracket, about 45.5% at 35%.

The levers that move MAGI are the familiar ones: pre-tax 401(k), 403(b) and 457(b) deferrals, a cash balance plan for 1099 and practice-owner physicians, PTET for pass-through owners, and the timing of bonuses or practice distributions where you have a choice. Our cash balance plan guide covers the largest of those levers.

If your MAGI is well above $606,333, the phasedown is irrelevant: your cap is $10,000, just as it was before. If it is well below $505,000, you simply get a bigger deduction. The band itself is the planning zone.

From 2026, itemizers deduct charitable gifts only to the extent they exceed 0.5% of their contribution base, generally AGI. For a $560,000 household, the first $2,800 of gifts produces no deduction. Physicians in the 37% bracket (above $768,700 of joint taxable income in 2026) also face a 2/37 reduction to itemized deductions, which caps their value at about 35 cents per dollar. Bunching several years of gifts into a donor-advised fund in one year is the usual response to a floor; whether it fits your numbers is a planning question.

The AMT exemption stays high, but it phases out sooner and twice as fast in 2026: starting at $1,000,000 of joint AMT income and gone by $1,280,400. Most W-2 physicians never get there. A practice sale, a large capital gain year, or exercising incentive stock options can.

The estate and gift exemption is $15,000,000 per person in 2026 and indexed after that, instead of dropping by roughly half as the old law scheduled. Physicians who rushed gifts in 2025 to beat the sunset no longer face that deadline.

Most 2027 dollar amounts (brackets, standard deduction, QBI thresholds, AMT exemptions, Section 179, estate exemption) are inflation-indexed. IRS publishes these in late 2026. Two items have formulas in the statute: the SALT cap rises 1% to about $40,804 and the phasedown threshold to about $510,050, and the AMT phaseout thresholds begin indexing for the first time.

The new deductions for tips, overtime, car loan interest and seniors end after 2028, and the SALT cap drops back to $10,000 in 2030. A new federal scholarship tax credit of up to $1,700 starts January 1, 2027, in states that opt in.