Locum tenens work offers healthcare providers flexibility, variety, and often higher hourly rates. But without proper tax planning, a significant portion of that income goes to taxes. Here's how to optimize your tax situation.
Understanding Your Tax Situation
As a locum tenens provider, you're typically classified as an independent contractor (1099). This means:
- You're responsible for all taxes (no employer withholding)
- You pay self-employment tax (15.3%)
- You can deduct business expenses
- You have more control over your tax planning
Entity Structure: Should You Incorporate?
Many locum providers benefit from forming an S-Corporation. Here's why:
- Pay yourself a "reasonable salary" subject to payroll taxes
- Take remaining profits as distributions (no SE tax)
- Potential savings of thousands in self-employment tax
Consult with a tax professional to determine if S-Corp election makes sense for your income level.
Travel Expense Strategies
Travel is a significant expense for locum providers. Maximize deductions by:
- Tracking all mileage to/from assignments
- Keeping receipts for lodging, meals, and transportation
- Using per diem rates when staying in temporary locations
- Deducting 100% of business travel (lodging, airfare)
- Deducting 50% of business meals
Retirement Planning
Take advantage of self-employed retirement plans:
- Solo 401(k): Contribute up to $69,000 in 2025
- SEP-IRA: Contribute up to 25% of net self-employment income
- Defined Benefit Plan: For high earners, contribute even more
The Home Office Advantage
If you handle administrative work, credentialing, or telemedicine from home, you may qualify for the home office deduction. This includes a portion of:
- Rent or mortgage interest
- Utilities
- Home insurance
- Repairs and maintenance
Timing Income and Expenses
As a cash-basis taxpayer, you have control over timing:
- Defer income to next year if you're in a high bracket
- Accelerate expenses into the current year for immediate deductions
- Prepay expenses like malpractice insurance or CME courses
Bottom Line: With proper planning, locum tenens providers can significantly reduce their tax burden while building wealth for the future. Consider working with a tax professional who specializes in healthcare providers.