New to a locum tenens assignment? To optimize tax planning and maximize savings, here are important factors to consider.
Being a locum tenens physician gives you a great deal of flexibility, providing new opportunities during a career and a chance to gain further professional experiences and perspectives. You can potentially work in locations you wouldn’t otherwise, including different states and perhaps even countries.
There’s plenty to consider when you’re taking on these roles, including moving costs, where you’ll live, your new employer, and plans for the future. And there are also unique tax implications from being a locum tenens physician since you will be most likely be working as an independent contractor during your assignment.
Here’s what you need to know about tax planning for locum tenens positions:
1099s and paying estimated taxes
Up until now, you may have always been a W-2 employee, meaning taxes are taken out of your paycheck each month by your employer, and you simply have to file an annual return. When you start as a locum tenens doctor, you become an independent contractor—meaning you’ll receive a 1099 form from your employer instead of the W-2. This income is still reported to the IRS by a locum tenens employer.
As an independent contractor receiving one or more 1099s, you’ll probably have to pay estimated quarterly taxes. You’ll only receive the 1099 annually, so you have to keep track of your income and calculate how much you owe to the IRS each quarter. When it’s time to file the annual tax return, you’ll report your 1099 income on Schedule C (Form 1040 or 1040-SR).
Depending on the type of business structure, the rules on when and how much you pay will vary. But be prepared to set aside more for taxes, since you’ll be covering your employer’s share of FICA taxes as well as your own, unlike W-2 employees.
Writing off expenses
A benefit of being an independent contractor is that you can write off work-related expenses. If you have to move for your locum tenens assignment, for example, you can usually write off the costs of moving and travel. Other deductions apply to a home office (if applicable), retirement savings, and sometimes your car. Make sure you save all receipts and records and document your business expenses when they occur.
You may qualify for many other deductions, so walk through your expenses with a tax professional. It’s crucial to take advantage of all available tax credits since you’ll be covering more in taxes as an independent contractor.
Creating a tax entity
Some locum tenens physicians decide to create an LLC, PLLC, or corporation to gain more control over their taxes. Sometimes, it might make more sense for you to create one of these business structures if you are earning a lot in your temporary position or paying a significant amount in self-employment tax. However, don’t make the call without first talking through your situation with a CPA.
Filing in the right locations
Just because you’re temporarily working in another state doesn’t necessarily mean you don’t have to file taxes in your home state. You will likely have to file in both locations. And if you’re working in multiple states, you will have to pay taxes to all of them, though you won’t have to pay taxes on the same income more than once.
If you’re taking on an international locum tenens position, you’ll still be taxed by the IRS on income earned outside the country, in most cases.
Finding the right tax help
It’s incredibly beneficial to find a qualified tax professional to assist you if you are a locum tenens physician. The aforementioned tax considerations will vary based on your specific situation—where you’re practicing, for how long, the type of business entity you’ve created, and more. A tax professional will help you understand when to pay taxes, what you can deduct, and how much to pay quarterly, if applicable.
Provident CPA & Business Advisors can provide the peace of mind that you’re filing correctly and taking advantage of each and every deduction available to you. Changing locations or job duties for a locum tenens assignment can already be chaotic, so allow us to help manage your tax burden.