Locum tax planning starts with understanding that most locum clinicians work as 1099 independent contractors, not W-2 employees. That means no employer withholding for federal or state income tax, higher self-employment tax exposure, and more responsibility for quarterly estimated payments — but also more flexibility to deduct legitimate business expenses with guidance from a qualified CPA.
1099 vs. W-2: What Locum Providers Should Know
Permanent hospital employees receive W-2 wages with taxes withheld and often employer-sponsored health insurance and retirement contributions. Locum providers typically receive 1099 income from the staffing agency or a locums LLC. You may earn a higher hourly rate, but you must budget for:
- Federal and state income tax (paid quarterly via estimated payments)
- Self-employment tax (Social Security and Medicare on net earnings)
- Health insurance premiums
- Retirement savings (SEP-IRA, Solo 401(k), etc.)
- Licensing, CME, and professional membership costs
Compare offers using net income, not gross hourly rate. Our Locum compensation guide explains how specialty and location affect pay before taxes.
Common Tax Deductions for Locum Clinicians
Independent contractor status may allow deductions for expenses that are ordinary and necessary to your practice, subject to IRS rules and your CPA’s advice. Examples locum providers often discuss with tax professionals include:
- State medical board and DEA renewal fees
- Continuing medical education and conference travel
- Professional liability insurance premiums you pay personally
- Malpractice tail coverage when required outside agency contracts
- Home office expenses when used exclusively for administrative work
- Mileage for local travel between assignments (when not reimbursed)
Agency-provided travel and housing on locum contracts are generally agency expenses — not deductions you claim separately when they are fully reimbursed or prepaid.
Multi-State Licensing and Tax Nexus
Locum assignments across multiple states can create filing obligations in more than one jurisdiction. You may owe non-resident state income tax where you physically work, depending on state rules and how long you are present. Track days worked by state, retain assignment contracts, and share schedules with your tax preparer early in the year.
Quarterly Estimated Tax Payments
Because taxes are not withheld from most locum 1099 payments, the IRS expects quarterly estimated payments when you expect to owe significant tax. Missing deadlines can trigger penalties even if you pay in full at year-end. A common approach is setting aside 25–35% of net locum income in a dedicated tax savings account, adjusted after your CPA reviews your first year of locum work.
Entity Structure: Sole Proprietor vs. LLC
Many locum physicians operate as sole proprietors or single-member LLCs. An LLC does not automatically reduce taxes but may offer liability structuring benefits depending on your state. S-corp elections are sometimes discussed for high earners — this is a CPA decision based on your total income, state rules, and administrative tolerance.
Locum Tax FAQ
Do Locum agencies withhold taxes?
Most locum staffing agencies pay clinicians as 1099 contractors without tax withholding. You receive gross pay and manage estimated taxes independently. Confirm classification in your contract before starting.
Is Locum income taxed differently than salary?
The income is taxed as ordinary earnings plus self-employment tax when you are a 1099 contractor. The difference is timing and responsibility — you pay estimated taxes yourself rather than through employer withholding.
Can I deduct travel for locum assignments?
When the agency pre-pays flights and housing, those costs are not your deduction. Personal travel between home and an assignment, or unreimbursed mileage, may be deductible under current IRS rules — confirm with your CPA.
Should I hire a CPA familiar with Locum?
Yes. A healthcare-focused CPA understands multi-state locum schedules, 1099 reporting, and common deduction questions. The cost of professional advice usually pays for itself in avoided penalties and optimized planning.
Ready to compare locum pay before tax planning? Browse Locum jobs, read our compensation guide, or contact AZ Locums to discuss upcoming assignments.
