In a previous blog post, we discussed locum tenens tax tips for doctors filing their taxes for 2017.
In this article, we want to detail how the changes coming with the new tax plan enacted by the Trump Administration on December 22, 2017 affect doctors based on how they file income tax.
The plan was created by the “Tax Cuts and Jobs Act”, which was signed into law with a final tally of 224-201. These changes went into effect January 2018 and are applied to the 2018 tax year.
Changes to Federal Income Tax Brackets
The main change that everyone is talking about is the update to federal income tax brackets. The updated brackets look like this:
- If your taxable income as an individual is between $0 to $9,525: Your tax rate is 10%
- Between $9,526 to $38,700: 12%
- Between $38,701 to $82,500: 22%
- Between $82,501 to $157,500: 24%
- Between $157,501 to $200,000: 32%
- Between $200,001 to $500,000: 35%
- Over $500,001: 37%
Married Joint Filers:
- If your taxable income as married joint filers is between $0 to $19,050: Your tax rate is 10%
- Between $19,051 to $77,400: 12%
- Between $77,401 to $165,000: 22%
- Between $165,001 to $315,000: 24%
- Between $315,001 to $400,000: 32%
- Between $400,001 to $600,000: 35%
- Over $600,000: 37%
What Are The Effects of the New Tax Plan for Doctors?
We’ve previously broken down the difference between filing W-2 or 1099, but essentially doctors working permanent positions will file taxes based on W-2 income while locum tenens doctors file based on 1099 income, meaning they are independent contractors.
This distinction is important because how you file determines what sorts of deductions and tax breaks you can qualify for. Let’s compare the changes.
What are the major changes for doctors filing based on W-2 income?
There are three major changes here:
- Business expenses are no longer deductible. This includes things like mileage, meals, licenses, etc. Stipends are still allowed but those must be allocated separately and are different from expenses deducted after the fact.
- The standard tax deduction has increased but personal exemption has been removed.
- Tax rates have been decreased, as outlined above.
What are the major changes for doctors filing based on 1099 income?
The changes for W-2 income filers also hold here but there is one other major change that 1099 filers need to be aware of:
- Up to 20% of qualified pass-through income is deductible from taxable income depending on your annual income. However there are limits on this rule that can reduce it. If you earn less than $157,000 as a single filer or $315,000 as a married filer, you are allowed to deduct the full 20% of earnings. However if your income goes above those, the deduction begins to phase out. If you earn more than $207,500 as a single filer or $415,000 as a married filer, the amount you are allowed to deduct goes down to zero.
Helpful Tax Resources for Locum Tenens Doctors
Here are a few helpful resources to reference to learn more about how to do your taxes as a locum tenens doctor:
- Official IRS Website: The official website of the IRS is probably the best place to get the most accurate and up-to-date information. They have articles with helpful information as well as calculators to help you figure out your withholdings.
- The White Coat Investor: Their blog often features articles about how tax laws are changing and how to understand your tax return.
- Medscape: Often news sites like Medscape will have relevant articles on things to know about filing taxes as a doctor. Browsing a few of these sites will help you find the information you need to know.
There you have it! These changes can be confusing, but we hope that this breakdown helps you to start understanding how you will be affected in the next tax year.
Important Disclaimer: We aren’t CPAs or by any means experts on this subject. We strongly suggest talking with a CPA who has experience working with locums doctors to help you find the best rates for your specific situation. This article is intended to give you a place to start thinking about this very important part of your career.
Ready to look for a locum tenens job? Start your locum tenens job search here!
Best of luck!
The Nomad Team
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