With 2024 in the rearview mirror, tax season is fast approaching. If you’re juggling multiple income streams, filing taxes can feel overwhelming—but it doesn’t have to be. We’ll show you how!
Whether you work locum tenens as an independent contractor (1099) or are a full-time physician or advanced practice provider (W-2), a little planning goes a long way. Understanding your tax responsibilities now can reduce stress and maximize financial benefits, allowing you to focus on what truly matters—caring for patients.
This guide breaks down key tax strategies for both independent contractors and full-time employees. We’ll cover deductions, retirement contributions, estimated tax payments, and more to help you get ready for tax time.
Understanding Tax Classification: 1099 vs. W-2
The first step in preparing your taxes is understanding how your employment classification affects your tax responsibilities and deductions. Each classification has different rules, so knowing where you stand can help you plan smarter and keep more of your hard-earned money.
1099 Physician Tax Tips
As a locum tenens contractor, you’re technically self-employed, which means you’re responsible for covering self-employment taxes—including Medicare, Social Security, and income taxes. The good news? You can access various tax deductions and strategies to help maximize your income.
Quarterly Estimated Payments
Unlike W-2 employees who have taxes withheld from each paycheck, independent contractors must calculate and pay estimated federal, state, and self-employment taxes quarterly. Later, we’ll explore how to accurately estimate your tax liability to ensure you’re not paying too much or too little.
Tax Liability
Locum tenens providers are responsible for self-employment tax, which covers both employer and employee portions of Medicare and Social Security. Here’s how it breaks down:
- Social Security tax: 12.4% on income up to $160,200
- Medicare tax: 2.9% on all income
- Medicare surtax: Additional 0.9% on income over $200,000 (single) or $250,000 (married)
Expense Tracking & Deductions
One major perk of being a 1099 contractor? Tax deductions! Keeping detailed records of work-related expenses, like travel, professional fees, and hardware, can significantly lower your taxable income. We’ll dive into additional deductions later, including home office expenses, telehealth equipment, and health insurance premiums.
W-2 Physician Tax Tips
If you’re a full-time employee with a hospital, practice, or clinic, your employer withholds taxes from your paycheck, simplifying the filing process. However, there are still ways to optimize your tax situation and retain more earnings.
Review Your W-4 Form
Your W-4 determines how much tax is withheld from each paycheck. Reviewing it regularly ensures your withholding aligns with life changes, such as:
- A new job or pay raise
- Marriage or divorce
- Having a child or new dependents
- Changes in deductions or credits
Adjusting your W-4 now can prevent owing taxes or receiving an unexpectedly large refund next year.
Make the Most of Employer-Sponsored Benefits
Employer-sponsored benefits at your facility can help lower taxable income. Consider taking full advantage of:
- 401(k) contributions: Reduce taxable income by contributing pre-tax dollars to retirement savings
- Health Savings Accounts (HSAs) & Flexible Spending Accounts (FSAs): Use pre-tax dollars for healthcare expenses and save on medical costs
Later, we’ll explore how W-2 employees can further reduce taxable income through IRA contributions and other tax-saving strategies.
State Taxes: What You Need to Know
States Without Income Tax
You won’t owe state income tax if you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming. However, some states offset lost tax revenue with higher sales and property taxes.
Working in Multiple States? Pay Attention to Residency Rules
Residency rules can get tricky if you live or work in multiple states. You could face double taxation without proper income allocation—paying state taxes in multiple places.
To avoid unnecessary tax burdens, it’s best to consult a tax professional who can help ensure your income is reported correctly and you’re taking advantage of any available tax benefits.
Getting More From Your Deductions
Both W-2 and 1099 healthcare professionals have access to various deductions that can reduce taxable income. Identifying which deductions apply to your situation helps you retain more of your income.
Tax Deductions 1099 Healthcare Professionals
If you’re a locum tenens contractor, you claim a range of deductions that help minimize your tax liability:
- Work-related travel: Airfare, mileage, lodging, and meals during assignments
- Licensing & certification fees: Costs to obtain or maintain credentials
- Continuing education: CME courses, conference fees, and related travel
- Temporary housing: If working away from your primary residence
- Home office: If you use part of your home exclusively for work (e.g., telemedicine)
- Health insurance premiums: Medical, dental, and long-term care insurance
- Telehealth technology: Webcams, software, and headsets used for virtual consultations
Tax Deductions For W-2 Healthcare Professionals
While full-time employees have fewer tax deductions, there are still ways to save:
- Unreimbursed job-related expenses: Uniforms, professional dues, and work-related travel (depending on state tax laws)
- Retirement contributions: Traditional IRA contributions may be tax-deductible
- Professional memberships & publications: Industry organization fees and medical journal subscriptions
Tax-Saving Strategies for Physicians & Clinicians
Now that we’ve covered the basics, let’s take a deeper dive into specific tax-saving strategies that can help both locum tenens contractors and full-time physicians and APPs.
Estimated Quarterly Tax Payments for 1099 Contractors
Making timely estimated tax payments helps independent contractors avoid IRS penalties. Here’s how:
- Estimate your annual income: Determine expected earnings for the year.
- Calculate your tax liability: Factor in federal, state, and self-employment taxes.
- Divide into four payments: Payments are due on January 15, April 15, June 15, and September 15.
Using online tax calculators or consulting a tax professional can ensure accuracy.
Retirement Savings Strategies
Contributing to retirement accounts can reduce taxable income and build long-term financial security.
For 1099 Independent Contractors
- SEP IRA or Solo 401(k): Contribute up to $66,000 in 2024 with tax-deductible contributions.
For W-2 Employees
- Traditional or Roth IRA: You can contribute up to $7,000 (or $8,000 if you are 50 or older) to supplement employer-sponsored retirement plans.
- Traditional IRA: Contributions may be tax-deductible based on income.
- Roth IRA: Contributions are after-tax, but withdrawals in retirement are tax-free.
Contributing to a retirement account is a smart way to build wealth while reducing taxable income, regardless of your employment type.
When To Seek Professional Guidance
It’s worth handing over the complex calculations to a tax professional at some point. They can help you:
- Maximize deductions and ensure you’re not overpaying
- Navigate multi-state tax rules if you worked in more than one state
- Ensure proper income allocation and avoid costly filing mistakes
A tax specialist can also help strategize for the upcoming year—so you’re not just reacting at tax time but planning for the future.
Take Charge of Tax Season
Tax season may not be the most exciting time of year, but you can confidently handle it with the right approach. Start by gathering your financial records, understanding your tax responsibilities, and seeking professional help when needed.
At OnCall Solutions, we know that managing your finances as a clinician comes with challenges—not just during tax season but year-round. That’s why we’re here to help you increase your income by connecting you with new opportunities that align with your skills and lifestyle. With expert guidance and access to flexible roles, you can focus on what matters most—caring for patients—while we help you build a stronger financial future.
