Locum Tenens Financial Planning: Taxes, Retirement, and Benefits for 1099 Physicians

Content verified against 2026 IRS limits and current tax law. For informational purposes only — see a fee-only advisor for guidance specific to your situation.

Locum tenens work offers flexibility and often higher gross pay than a permanent position. What it removes is the employer infrastructure that most physicians take for granted: tax withholding, retirement contributions, health insurance, disability coverage, and malpractice. Every one of those responsibilities lands on you — and the financial consequences of getting them wrong are significant.

This guide walks through the complete financial picture for locum physicians, from the first 1099 to building long-term wealth on a variable income.

The self-employment tax: what changes when you go from W-2 to 1099

As a W-2 physician, you pay 7.65% in FICA taxes and your employer pays the matching 7.65% on your behalf. You don't see the employer half — it disappears before the paycheck. As a 1099 physician, both sides are yours.

Example: A locum hospitalist netting $320,000 of self-employment income in 2026 owes approximately $27,200 in combined SE tax on the first $184,500 of earnings, plus 2.9% on the remaining $135,500 ($3,930), for a total SE tax obligation around $31,130. The 50% deduction reduces AGI by $15,565, which partially offsets the bill. But this is on top of federal and state income taxes — which is why locum tax planning requires a different mental model than W-2 employment.

Quarterly estimated taxes: the four deadlines you cannot miss

W-2 physicians have tax withheld from every paycheck. Locum physicians have nothing withheld — and the IRS expects quarterly prepayments. Missing or underpaying estimated taxes results in an underpayment penalty on top of the tax owed.

The 2026 estimated tax due dates:²

• April 15, 2026 (Q1 — January through March income)
• June 16, 2026 (Q2 — April through May income)
• September 15, 2026 (Q3 — June through August income)
• January 15, 2027 (Q4 — September through December income)

Safe harbor rule: You avoid the underpayment penalty if your total estimated tax payments plus any withholding equal at least 90% of your current-year tax, or 100% of your prior-year tax (110% if your prior-year AGI exceeded $150,000). For most locum physicians, targeting 110% of the prior year's tax is the practical approach — it removes uncertainty even when income is variable.

The solo 401(k): the biggest single financial lever for locum physicians

Employed physicians get a 401(k) from their employer. Self-employed physicians can establish their own — and the contribution limits are substantially higher than most people realize.

A solo 401(k) (also called a self-employed 401(k) or individual 401(k)) combines two separate contributions:³

• Employee deferral: Up to $24,500 in 2026 ($32,500 if age 50-59 or 64+; $35,750 if age 60-63)
• Employer profit-sharing: Up to 25% of W-2 compensation (for S-corp owners) or approximately 20% of net self-employment income for sole proprietors
• Combined annual limit: $72,000 in 2026 (under age 50); $80,000 if age 50-59 or 64+; $83,250 if age 60-63

At the 37% federal bracket, a $72,000 solo 401(k) contribution saves approximately $26,640 in federal income tax in the year of contribution, plus SE tax savings on the employer profit-sharing portion.

Critical timing rule: You must establish the solo 401(k) plan by December 31 of the tax year you want to claim deductions for. You can make the actual contribution up to your tax filing deadline (plus extensions), but the plan itself must exist before year-end. If you start locum work in November, you have roughly 60 days to open the account. Most major custodians (Fidelity, Vanguard, Schwab) allow online solo 401(k) setup — but don't wait.

S-corp election: does it make sense for your locum income?

For physicians earning $200,000 or more in annual 1099 locum income, an S-corp election often reduces the total SE tax bill by 15–30% compared to operating as a sole proprietor — while still allowing the same solo 401(k) contributions.

The structure works like this:

1. You form an LLC or corporation and elect S-corp tax treatment (Form 2553)
2. The S-corp pays you a reasonable W-2 salary — for physicians, typically $120,000–$175,000
3. Remaining profit passes through as an S-corp distribution
4. FICA taxes (both halves) apply only to the salary, not the distribution

The tradeoff: solo 401(k) employer profit-sharing is based on your W-2 wages inside the S-corp, so a lower salary reduces the employer contribution ceiling. At $150,000 W-2, employer profit-sharing is capped at $37,500 (25% of $150K) — still well within the $72,000 combined limit when you add the $24,500 employee deferral. Whether the optimal salary is $120K, $150K, or $175K depends on your total income, state tax situation, and retirement contribution goals. This is the kind of modeling a fee-only advisor who works with self-employed physicians does before year-end.

Travel expense deductions and the tax home rule

Travel deductions are one of the most frequently asked-about topics for locum physicians — and one of the most frequently misunderstood.

The tax home requirement

The IRS defines your "tax home" as your regular or principal place of business.⁴ Travel expenses (airfare, lodging, 50% of meals) are deductible only when you're away from your tax home on a temporary assignment. If you have no regular place of business — if you move from assignment to assignment with no consistent work location — the IRS may consider each assignment location your tax home, eliminating travel deductions entirely.

How to establish a tax home: Maintaining part-time or moonlighting work at a hospital or clinic in your home city — even a few shifts per month — gives you a regular place of business. A locum hospitalist who picks up shifts at their local hospital between travel assignments can establish that hospital as their tax home and deduct travel costs when they're working remotely.

What's deductible when you have a valid tax home

• Airfare and ground transportation to and from the assignment location
• Lodging if not provided by the agency (actual cost, no standard deduction)
• Meals: 50% of actual meal costs, or 50% of the IRS M&I per diem rate for the location
• Car mileage to assignment sites: $0.725 per mile (2026 IRS business rate)⁵
• Licensing fees for states where you take assignments
• Medical malpractice insurance premiums (self-paid)
• CME expenses related to your specialty
• DEA registration fees
• Professional association dues

If the locum agency provides housing stipends: Stipends paid by the agency are typically structured as non-taxable reimbursements for expenses incurred away from a tax home — but this only applies if you actually qualify for the deduction under the tax home rule. If you don't have a tax home, agency stipends may be reclassified as ordinary income on audit. The tax home structure isn't optional; it's a prerequisite.

Benefits you must buy yourself

The financial gap between W-2 and locum income isn't just taxes — it's also the employer-paid benefits that don't appear in the 1099 check. A hospital system that employs a physician at $350,000 may spend an additional $60,000–$80,000 on benefits: health insurance, disability insurance, malpractice coverage, retirement contributions, CME, and licensure. When you go locum, that $60,000–$80,000 becomes your problem.

Health insurance

Self-employed physicians can deduct 100% of health insurance premiums (for themselves, spouse, and dependents) from gross income — a full adjustment, not an itemized deduction. This partially offsets the higher cost of individual market coverage. ACA marketplace plans are one option; spouse's employer plan (if available) is usually cheaper when you can access it.

Disability insurance

This is the most commonly underfunded risk for locum physicians. Individual own-occupation disability policies take the longest to purchase (underwriting can take 4–8 weeks) and are most expensive if you delay until you need them. Locum physicians doing physically demanding specialties — surgery, procedural medicine — should prioritize this immediately. Premiums paid personally are not deductible, but any benefit received is tax-free. See our physician disability insurance guide for specifics on own-occupation definitions and key riders.

Malpractice insurance

Locum agencies typically provide claims-made malpractice coverage for the duration of your assignment. What they often don't provide: tail coverage, which pays for claims filed after the policy expires on incidents that occurred during the policy period. Before signing any locum contract, confirm in writing whether tail coverage is included. If it isn't, you need to negotiate it in or buy it separately. Tail coverage typically costs 150–250% of the annual claims-made premium. A physician who doesn't read this clause can unknowingly accept unlimited exposure for work they did years earlier.

Multi-state tax filing

If you work in multiple states, you generally owe state income tax in each state where you earn income — in addition to your home state return. Some states have reciprocity agreements (reducing double taxation), but many do not. States with no income tax (Texas, Florida, Nevada, Washington, Wyoming, South Dakota, Tennessee) are popular destinations partly for this reason.

The administrative burden of multi-state filing can be significant: separate state returns, state-specific deductions, prorated income allocation. Many locum physicians underestimate this when pricing assignments. A physician working in California for three months owes California state income tax (up to 13.3%) on those earnings, regardless of where they live. Factor state taxes into your effective hourly rate before accepting an assignment.

QBI deduction: when locum income qualifies

Under OBBBA (signed July 2025), the Section 199A qualified business income deduction is now permanent at 23% of qualified business income for eligible pass-through businesses.⁶ Medicine is a "specified service trade or business" (SSTB), which means the deduction phases out at higher income levels.

For married filing jointly in 2026, the SSTB phase-out begins at $394,600 of taxable income and is fully phased out at $544,600. A locum physician with $320,000 of net income who contributes $72,000 to a solo 401(k) reduces taxable income toward $248,000 — potentially below the phase-out threshold, unlocking up to a $57,000 QBI deduction (23% of $248,000). Whether this math works depends on your filing status, other income, and deductions.

The combination of solo 401(k) + S-corp optimization + QBI deduction can collectively reduce effective federal income tax by 8–12 percentage points compared to an unplanned approach. Over a 10-year locum career, the difference can exceed $1 million in after-tax wealth.

What a fee-only advisor does for locum physicians

The complexity above doesn't resolve itself. Each moving part interacts with the others: the S-corp salary you set affects your solo 401(k) employer contribution and your QBI deduction simultaneously. The Roth conversion you did last year creates a pro-rata issue for your backdoor Roth this year. The California assignment you're considering changes your effective rate calculation.

A fee-only financial advisor who works with self-employed physicians:

• Models whether an S-corp makes financial sense at your specific income level, net of setup and compliance costs
• Sets up the right retirement account structure and contribution strategy before year-end deadlines
• Coordinates with your CPA on estimated tax payments to avoid penalties without over-withholding
• Reviews locum contracts for malpractice tail exposure before you sign
• Builds a cash-flow framework for variable income: what goes to taxes, what goes to retirement, what's available to spend
• Models whether aggressive retirement contributions could put your taxable income inside the QBI deduction phase-in range

The fee-only model matters here. Commission-based advisors earn money when you buy products — insurance policies, annuities, managed accounts with loads. A fee-only advisor's incentive is getting the planning right and keeping you as a client. For a locum physician with complex multi-state, multi-entity tax exposure, a few hours of advisor time typically recovers its cost in the first year.

Sources

1. IRS Topic 751 — Social Security and Medicare Withholding Rates. 2026 Social Security wage base $184,500; SE tax rate 15.3% to wage base, 2.9% above; 50% SE deduction.
2. IRS — Estimated Taxes (Self-Employed). Quarterly due dates, safe harbor thresholds (90% current year / 110% prior year above $150K AGI).
3. IRS — One-Participant 401(k) Plans. 2026 combined limit $72,000 (under age 50); $80,000 (age 50-59, 64+); $83,250 (age 60-63); employee deferral $24,500.
4. IRS Publication 463 — Travel, Gift, and Car Expenses. Tax home definition, deductibility requirements for temporary work assignments.
5. IRS — Standard Mileage Rates. 2026 business rate: $0.725 per mile.
6. Tax Foundation — OBBBA Section 199A Changes. 23% QBI deduction permanent under OBBBA; SSTB MFJ phase-out $394,600–$544,600 taxable income (2026).

Tax values verified against 2026 IRS limits, SSA wage base announcement, and post-OBBBA rules (July 2025). Tax law changes frequently — confirm current limits with your advisor before acting.