While doing locums tenens work may feel like working as a contractor or “freelance” medical provider, in the eyes of the government, locums physicians are small business owners, which has important tax considerations.

Here’s a roundup of tax filing tips that locum tenens physicians can use to stay compliant, lower their tax bill, and protect themselves from identity theft.

Tip 1: Prepare to Pay Taxes Quarterly

• Locum tenens physicians are solely responsible for paying self-employment and income taxes.
• The IRS and states require quarterly estimated tax payments.
• It’s best practice to set aside 30–40% of each check for taxes.

As a locum tenens physician, you’re classified as an independent contractor according to U.S. Department of Labor standards. And according to the IRS, that makes you a small business owner. Except in extremely rare circumstances, such as when you’ve provided an incorrect Social Security number to a client in the past, hospitals and medical groups won’t withhold any portion of your pay for income or payroll taxes.

Rather than your employer setting aside a portion of your earnings for taxes, you’ll need to save a portion of your earnings and remit it to a) the IRS and b) your state once a quarter through estimated tax payments. Estimated tax payments are meant to cover both income and payroll taxes, which include Social Security and Medicare taxes. You face failure-to-pay or underpayment of tax penalties if you skip estimated tax payments, which can add up quickly.

How much you need to send in estimated tax payments depends on the extent of your locum tenens earnings, available deductions (we’ll discuss that next), other income, marital status, tax rates, and more. As a general rule, it’s smart to set aside 30–40% of each check for taxes.

Tip 2: File Separate State Taxes if You Work in Different States

Online tax software can help you calculate estimated tax payments and fill out and file IRS Form 1040-ES and corresponding state tax forms. However, if you work locum tenens in more than a couple of states, online software might not be sophisticated enough to help you, so you will want to consult a tax advisor to help.

When it comes to calculating your quarterly estimated tax payments, you have two options:

• Traditional method: Make four equal payments based on your expected earnings for the year
• Annualized income installment method: Make four uneven payments based on your actual earnings for the quarter

The option you choose depends on the nature of your income. If your income is steady and earnings don’t change much from quarter to quarter, the traditional method is the way to go. If your income varies significantly throughout the year, the annualized income installment method likely makes more sense.

And, if you’re using the traditional method in the beginning of the year and unexpectedly earn a significant amount more or less than you expected, you can switch to the annualized income installment method to adjust your estimated payments for the remainder of the year.

Note that if you use the annualized income installment method, you’ll also need to file IRS Form 2210 to prove that your income has fluctuated throughout the year.

Example: You’re a locum tenens physician and have contracts with two hospitals and one medical group. In the third quarter of 2024, you earn $25,000 from Hospital 1, $5,000 from Hospital 2, and $3,500 from Medical Group 1. Because your income is uneven throughout the year, you’ve chosen the annualized income installment method for estimating income tax payments. You saved 35% of each check received: You have $11,725 set aside in a high-yield savings account by the end of the quarter. By September 15 — the IRS deadline for Q3 estimated tax payments — you log into your online tax software and make an estimated tax payment of $11,500, the amount your software estimated is the appropriate amount. You keep the leftover $250 in your bank account for your next payment.

Tip 3: Avoid Filing Taxes Late

Failing to make accurate estimated tax payments can lead to penalties and interest on late-paid taxes when you file your annual tax return.

The IRS won’t charge penalties and interest when:

• You owe less than $1,000 for the year, or
• During the year, you paid at least 90% of tax owed for the year or 100% of the tax owed last year, whichever amount is less. However, that 100% increases to 110% for taxpayers whose adjusted gross income exceeded $150,000 in the prior year.

Tip 4: Increase Withholdings on Your W-4 if You Also Work Full-Time

If your job withholds taxes and you do locum tenens work on the side, you can avoid the complicated estimated tax payment process by simply increasing your withholding at your other gig. You can do that by submitting a fresh IRS Form W-4 and the state version of the same form.

Example: You’re a full-time physician at Hospital 1 and do locum tenens work at Medical Group 1 when you have the time. In the third quarter of 2024, you earned $15,000 from Medical Group 1. At your full-time job that withholds taxes on your behalf, you submit new federal and state tax withholding certificates to cover taxes for income from Medical Group 1. Your tax advisor figured that you should ask your employer to withhold an additional $875 with every semi-monthly paycheck, so you enter $875 on Line 4c of Form W-4.

Tip 5: Maximize Deductions

Unlike employees, who are generally unable to take work-related deductions, independent contractors can claim deductions for “ordinary and necessary” business expenses. The IRS and state laws narrowly define what is “ordinary and necessary,” so it’s important not to assume that it’s a subjective phrase.

Locum tenens physicians may be able to deduct the following costs on their tax returns:

• Scrubs and other clothing that is not and could not reasonably be worn in your personal life. For example, sneakers you bought at Nordstrom that you only wear for work are not deductible because normal sneakers could reasonably be worn in your personal life.
• Malpractice insurance
• Necessary equipment that you bring to your jobs
• Continuing education that is required to maintain your license
• License and membership fees

Tip 6: Leverage QBI deductions

The deductions don’t necessarily stop there. Locum tenens physicians might be able to take advantage of the federal qualified business income (QBI) deduction, which generally provides a deduction of the lesser of

• 20% of a non-corporate taxpayer’s QBI, or
• 20% of the taxpayer’s taxable income minus capital gains.

For a locum tenens physician, QBI is roughly their locum tenens income. So if you make $60,000 working locum tenens, the QBI deduction could be as much as $12,000.

Unfortunately, the QBI deduction is incredibly complicated. It’s made even more complex by the fact that businesses in the health field are considered a specified service trade or business (SSTB), making it subject to further limitations.

It can pay to work with a tax advisor to help you identify further tax credits and deductions.

Tip 7: Consider Getting an IRS Employer Identification Number (EIN)

When you’re a locum tenens physician, you’ll get familiar with IRS Form W-9. Each new client you take on will ask for a Form W-9, which requires that you share your very-personal Social Security number (SSN). Form W-9 allows your client to report your earnings to tax authorities and issue IRS Form 1099-NEC in the following year.

To protect yourself from identity theft, it’s smart to request a (free) employer identification number (EIN) from the IRS. Having an EIN allows you to fill out Form W-9 without sharing your SSN. Rather than entering your SSN in Part I, you’ll enter your EIN instead. That way, your clients don’t have access to this sensitive piece of information.

For tax filing purposes, it generally doesn’t make a difference whether you enter your EIN or SSN on Form W-9; the IRS knows it’s you either way. But from a personal safety perspective, it can make a meaningful difference. Applying for an EIN online takes about 10 minutes, and you immediately receive the EIN upon submission.

Bottom line

There’s a considerable amount of flexibility that comes with working locum tenens. With that flexibility comes some responsibility, though: From submitting estimated quarterly tax filings to estimating deductions, taxes for a locum tenens physician can get complicated quickly. Having a tax pro in your corner can cost some money up front but wind up saving you by identifying available deductions and credits and curtailing late-filing penalties and fees.

Join the Discussion

What tax strategies have helped you save? Share your experiences with fellow locum tenens physicians in the comments below.