There’s no question the locum tenens career alternative offers physicians, physician assistants, and nurse practitioners plenty of benefits. There’s scheduling flexibility. There’s an opportunity to travel. And of course, accepting temporary contracts can help supplement one’s income.
As independent contractors, though, locum tenens professionals are neither employees of the staffing agency they partner with nor of the healthcare facilities where they treat patients while on assignments. This status affords some valuable freedoms, like those noted above. However, it also brings with it some fiscal responsibilities.
The following are a few of the top tips for being money-smart when taking locum tenens jobs.
Set Aside Funds for Taxes
Locum tenens providers are compensated in gross, which means paid in full for the hours worked without any deductions, including state and federal taxes. However, you’re still responsible for paying applicable taxes on the income earned during each contract. Most experienced independent contractors and financial advisors recommend setting aside a portion from each paycheck to account for this requirement. This way, you won’t be caught off guard come April 15 with a hefty tax bill. IRS Form 1040-ES provides a basic guide to calculate how much is owed.
Pay Estimated Quarterly Taxes
Both the IRS and most state tax agencies encourage independent contractors to make estimated payments on a quarterly basis—in April, June, September and January of the following year. In fact, there could be late fees applied for missing these deadlines. It’s also important to know that independent contractors are required to pay self-employment tax, which covers Social Security and Medicare. This typically happens when filing your annual tax return.
Contribute to Retirement Accounts
Each time you send a check to cover estimated quarterly taxes, be sure to pay yourself, too, by investing in your retirement accounts. Not only are you saving for the future, but most of these contributions are tax-free. Therefore, it lowers your overall taxable income.
Create a Business Account
According to Equifax.com, having a separate business bank account to receive direct deposits of locum tenens payments will bolster your case if the IRS ever requests an audit. It helps distinguish between professional and personal income and expenses. Also, use this account—or a separate credit card exclusively designated for business transactions—to purchase items needed for the job, such as scrubs, personal equipment, or specialty association dues. Of course, you also can pay yourself from a business account, basically writing yourself a paycheck.
Keep Track of Records While on the Road
It’s convenient that locum tenens staffing companies assume the cost of housing and transportation for each assignment. Still it’s virtually guaranteed that you’ll incur some expenses while on contract—you have to eat, after all. The IRS allows independent contractors to deduct certain costs of doing business away from home that are not reimbursed, such as meals.
In addition to keeping receipts for purchases while on contract, maintain records for healthcare insurance premiums, licensing, membership fees, and professional services, such as those provided by lawyers or accountants. These, too, can be submitted as deductions, typically via a profit and loss statement with tax returns. Dailyfinance.com reports that independent contractors claiming less than $5,000 in business expenses and who do not report net losses can utilize the Schedule C-EZ Net Profit From Business form.
Of course, whenever finances or taxes are involved, it always pays to check in with a certified financial advisor or tax specialist.
It’s true the locum tenens lifestyle calls for providers to assume a proactive approach to managing their finances. However, it’s also true that the locum tenens lifestyle can deliver an impressive return on investment.
Check out Tax Benefits for Independent Contractors for more tips while you file taxes — and share your suggestions for making the process simpler below.