Locum tenens work offers physicians the opportunity for increased earning potential and schedule flexibility. It also comes with some unique considerations because most locum tenens physicians act as independent contractors rather than full-time employees. But with the right information, dealing with locum tenens finances can become an opportunity rather than a burden.
In collaboration with a panel of certified financial planners from Personal Choice Financial, we recently hosted the webinar Finances of Locum Tenens: Taxes, Benefits, and Beyond. Watch the full webinar below or keep reading for a summary of the key takeaways.
While locum physicians work as independent contractors and are responsible for arranging their own healthcare coverage and retirement planning, they also receive some important benefits when working with a reputable staffing agency. These usually include:
Medical malpractice insurance: Physicians are covered by a staffing agency’s policy while on assignment. Coverage types and duration may differ between agencies — Weatherby Healthcare always includes lifetime tail coverage for every assignment.
Licensing, credentialing, and privileging assistance: Well-established locums agencies will often have relationships with licensing boards and facilities throughout the country, and they can help expedite the process of completing the necessary paperwork.
Travel and housing: Locums agencies handle these expenses, though an agency that goes above and beyond will also arrange extra details like rental cars. You’ll typically stay in a hotel for shorter assignments, and potentially an apartment, condo, or home for longer assignments.
Self-employment gives you options when saving for retirement, and in some cases higher contribution limits than are available to full-time employees. Popular choices among locum tenens physicians include:
Individual retirement accounts (IRAs): Traditional and Roth IRAs are among the most popular retirement accounts for locum physicians. Traditional IRAs use tax-deductible contributions and taxable distributions, whereas Roth IRAs use after-tax contributions with tax exemptions for qualified distributions.
Simplified employee pension (SEP) IRA: Designed for self-employed individuals, SEP IRAs have higher contribution limits, with tax-deductible contributions and taxable distributions.
Solo 401(k): Intended for self-employed individuals with no employees, a solo 401(k) allows contributions from both an employee and an employer. As a locum tenens physician, you can make tax-deductible contributions in both roles.
Defined benefit plans: These plans are more complex and usually require a financial advisor to set up, but they can be an excellent option if you’d prefer a fixed income stream after retirement.
Contribution limits, tax benefits, and other details vary depending on several factors. A financial advisor can help you determine the best options for your individual circumstances.
While arranging your own medical, dental, and disability coverage requires a little more work upfront, it also means you can choose the coverage that best suits your needs. Locum physicians exploring health insurance options should keep these tips in mind:
Look into your spouse’s or partner’s benefit plan: Your significant other may be able to cover you via a family plan, with significant cost savings versus purchasing your own coverage.
Enroll in COBRA as a short-term solution: For physicians transitioning from a permanent position to locums work, COBRA can help prevent any gaps in health coverage.
Browse the insurance exchange: A plethora of options are available at HealthCare.gov, and any insurance premiums you pay as a self-employed locum physician are tax-deductible.
American Medical Association healthcare plans: If you’re a member of the AMA, you’ll have access to insurance plans tailored to physicians and their families.
Consult an independent insurance agent: They’ll be able to answer your questions and guide you toward a healthcare plan that makes the most sense for your lifestyle.
The business entity you choose affects how you’ll file your taxes and determines certain legal liabilities. There are many factors to consider, and meeting with an expert is the best way to make an informed decision.
No matter the business structure you end up using, there are a few steps you should take to prepare for work as an independent contractor:
Get a federal Employer Identification Number (EIN): You can get one from the IRS here.
Separate your finances: Open a dedicated bank account and credit card for your business, so it’s not intertwined with your personal finances.
Plan ahead for taxes: Self-employed locum physicians need to pay estimated taxes quarterly, so don’t wait until the last minute to talk to a tax professional.
Keep detailed records: Hang on to all your receipts (the IRS doesn’t accept credit card statements) and consider using bookkeeping software to stay organized.
Forming a corporation does not protect physicians from malpractice claims. However, it can protect your personal assets from other types of lawsuits that can arise while doing business.
Several types of business entities are available, each with their own benefits and tax implications. Some of the most popular options for locum tenens physicians include:
Sole proprietorship: This is the “default” option for people who do not set up another business entity. It makes sense for many physicians, especially those who also have a W-2 job. There’s no extra liability protection, and you’ll report your income and expenses via your personal taxes.
Limited liability company (LLC): LLCs separate the business from the individual. While there are no major benefits for locum physicians compared to a sole proprietorship, many people choose this structure anyway to help them stay organized.
S corporation: An S corp is an excellent choice for high earners who work locums full time. You’ll act as an owner/employee and receive a W-2 salary from your own business entity. Any profits beyond your salary become a business distribution to the owner, which can offer tax savings.
Your income, the state(s) where you work locums, and your desired level of liability protection will all be factors in determining the best option for you. Meeting with a financial advisor or accountant is the best way to ensure your choice aligns with your goals and needs.
Locum tenens physicians are 1099 contract employees, which means they’re responsible for paying their own taxes. While your chosen business entity determines some specifics of your tax situation, there are a few basics you should know before meeting with a tax professional.
Because self-employed physicians don’t have taxes withheld from their paychecks by an employer, the IRS mandates you make quarterly payments based on your estimated income. These payments are generally due on the 15th of April, June, September, and January.
In addition to federal income taxes, you’ll also need to pay self-employment taxes, which cover your share of Medicare and Social Security tax. You’ll also be responsible for paying income taxes in your home state and any state in which you’ve worked. Each state has its own tax laws, so locum physicians who work in multiple locations should consult with an expert to make sure they fully understand their tax obligations.
Locum tenens physicians have a variety of opportunities to lower their tax bill with qualified deductions, including:
- Retirement contributions
- Health insurance premiums
- Health Savings Account (HSA) contributions
- Home office expenses
- Unreimbursed expenses like phone bills, vehicle mileage, meals, workwear, conference fees, parking, and tolls
Be diligent about keeping receipts — the IRS will not accept credit card statements for deductions. Your records should go back a minimum of three years, though seven years is even better.
Income shifting: Certain business structures may allow you to “hire” your spouse or child to help with saving for retirement or for future education expenses.
Medical reimbursement plans (MERPs): These can make your business eligible to cover out-of-pocket medical expenses or insurance premiums.
Primary care preceptor initiatives: To help address the shortage of physicians, these incentivize current physicians to help train new PCPs.
Rural care tax credits: Rural areas often have severely limited access to care, and these encourage physicians to work where they’re needed most.
For any physician who works locum tenens, consulting with a tax strategist or CPA is the best way to ensure you’re making the most of your status as an independent contractor.
Keep more of what you earn: Watch this webinar on locum tax strategies
Whether you’re interested in working locums as your full-time career or you’re looking to supplement your income, a great locums agency can be a valuable asset in accomplishing your financial goals.
When you work locums with Weatherby, you’ll be paired with a personal consultant who gets to know you as a professional and an individual. They’ll deliver hand-picked assignments that match how, where, and when you like to work, and offer guidance toward achieving the career you’ve always wanted.
Connect with a Weatherby consultant today, and get started on the path to greater flexibility and financial freedom.