Locum Tenens Tax Tips: What Doctors Need to Know
Ah taxes. That time-consuming chore you have to start thinking about every year as the cold recedes and the pollen starts springing from the trees. Allergies and taxes? What a great combination. 💸
This year, tax day is on Tuesday, April 17, 2018. That’s the deadline the IRS has set for you to file your income tax details.
Whether this is your first year doing freelance work or your fifth, it’s important to remember that filing your taxes as a locum tenens doctor is slightly different than you would for a permanent position. Let’s break that down.
W-2 vs 1099: What it Means for Locum Tenens
The most important difference to be aware of when working as a locum tenens doctor is that you are an independent contractor of the medical institution, not an employee. That means your employer won’t be taking taxes out of your paycheck, so you will be responsible for estimating your own tax payments and making tax payments at the required time. Make sure to set aside money to pay your taxes.
When working a permanent position, you fill out an IRS W-2 form to file your taxes. As a locum tenens doctor, you will instead be filling out an IRS 1099-MISC form. January 31 is the annual deadline for companies to present independent contractors with 1099 forms, so make sure to request it from your employer if you haven’t already received it.
Keep accurate recordings of your earning during the year as it will help you calculate the taxes that you owe throughout the year. Depending on how much income you make as a 1099 employee, you may need to pay taxes throughout the year rather than just once at the end. If you end up owing $1,000 or more in taxes at the end of the year, the IRS will require quarterly payments. This will most likely be applicable if locums is one of your main sources of income.
How Traveling Affects Taxes
Locums work is a great opportunity to get paid to travel, whether it’s across the country or a neighboring state. Many doctors take advantage of this opportunity to explore, and you should too! But something to keep in mind when doing so is that will affect how you’re required to file your taxes.
Make sure you figure out where you are legally required to file. In most cases, you will be required to file in both your US state of residence and the state of your assignment. Don’t assume you will only need to file in one. Connect with a financial professional to help determine where you’re required to file and to help you find the best deals for your situation.
Tax Deduction Tips for Locum Tenens Doctors
There are a number of things you can do as an independent contractor that are tax deductible. You can see a full list on the IRS website.
Work-Related Expenses: You can submit tax deductions for a number of business-related expenses. Make sure to keep careful records so you can submit properly. Some of these include:
- Cell phone and internet bill
- Equipment and supplies
- Licensing and board exam fees
- Parking and tolls
- Scrubs and lab coats
- Healthcare premiums
Also keep in mind that there is a one-year limit on assignment length to still be considered a “temporary assignment” and be taxed as such. These work-related expense benefits will no longer be considered taxable compensation if you work in the same location, even if it is on different assignments, if the one-year limit is anticipated to be exceeded. This means if your contract is extended past one year, even if it hasn’t been 366 days, you will no longer be eligible for work-related expense benefits.
Retirement Plans: Just because you don’t have an employer-sponsored retirement program doesn’t mean you can’t create your own individual plan. Retirement programs are not only important to help you save for later, but also a great opportunity for a large tax deduction. There are a number of different types of plans to choose from - including 401k, SEP and IRA - that depend on your situation. Put in as much as possible up to the maximum to gain valuable tax benefits.
Health Savings Account (HSA): If it makes sense for you, contributing to an HSA account with pre-tax income will allow you to lower your taxable income as well as help you save funds to cover any health and medical needs. Keep in mind that these may be paired with a high deductible plan, so isn’t necessarily the right choice for everyone.
Locum Tenens Tax Incentives for Areas in Need
Working in certain areas or in certain roles can also potentially qualify you for tax incentive or credits.
Rural Care Tax Credits: If you decide to work in a rural area, you may be eligible for rural care tax credits. These are incentive programs instituted by certain states to encourage physicians to practice in rural areas with severe shortages. A few of these include New Mexico, Oregon and Georgia. Search “rural physician tax credits” to see if your state has this program. You can also start searching for opportunities in these areas on Nomad today:
Primary Care Preceptor Tax Incentives: Some states have programs that offer doctors tax incentives to help train primary care physicians to help combat the shortage that states are facing. A few of these include Colorado and Maryland. New York is currently in the process of passing a bill to establish this program. To see if your state has this program, search “tax incentive primary care preceptor”. You can also search for opportunities in these areas on Nomad today:
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! Tax season may be upon us but that doesn’t mean you need to forage into the world of taxes uninformed.
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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