Locum Tenens Salary After Taxes (2026): The Real Take-Home and How to Keep More of It

The First Question: W-2 or 1099?

Before the tax discussion begins, understand that not all locum tenens arrangements are 1099. A W-2 locum position means the agency treats you as an employee. They withhold federal and state taxes, pay the employer half of Social Security and Medicare taxes at 7.65 percent, and you don't owe self-employment tax. A 1099 position makes you self-employed — you handle all tax payments, owe both halves of SE tax, but gain access to business deductions.

Most locum arrangements through national staffing agencies — CompHealth, Weatherby Healthcare, Staff Care, and similar — offer W-2 classification with the agency. Some larger agencies have shifted to 1099 structures. Direct hospital contracts are almost always 1099 or contract-based.

The W-2 locum arrangement is simpler — taxes are withheld, and the employer pays half of FICA. The 1099 arrangement requires more tax management but creates access to the complete self-employment deduction landscape that dramatically changes the net income calculation.

For most locum physicians earning above $150,000 annually in locum income, the 1099 structure with proper entity setup produces a better after-tax outcome than W-2 because the business deductions and Solo 401(k) contributions available on 1099 income more than offset the self-employment tax cost.

The Real After-Tax Calculation: What $350,000 in Locum Income Actually Produces

Most locum physician income discussions stop at the gross hourly rate. Here is what $350,000 in 1099 locum income actually produces across three scenarios.

The Self-Employment Tax: The Mechanism and the Math

One of the first shocks for new 1099 physicians is the self-employment tax. Unlike W-2 employees who split Social Security and Medicare taxes with their employer, 1099 contractors pay both halves themselves for a total of 15.3 percent of their net earnings.

The self-employment tax breaks down as:

• Social Security component: 12.4% on net earnings up to the Social Security wage base ($176,100 in 2026)
• Medicare component: 2.9% on all net earnings with no ceiling
• Additional Medicare Tax: 0.9% on net earnings above $200,000 (single) or $250,000 (married filing jointly)

On $350,000 in net locum income:

The one SE tax deduction that reduces income tax: The physician can deduct the employer-equivalent portion of self-employment tax — approximately half of the total SE tax — as an above-the-line deduction on their federal return. This deduction does not reduce the SE tax itself, but it reduces the income against which federal income tax is calculated. On $33,336 in SE tax, the deductible half is approximately $16,668 — saving approximately $6,167 in federal income tax at the 37% marginal rate.

The S-Corp Election: When It Applies and What It Saves

The S-Corporation election is the single most impactful tax decision a locum physician makes — and also the most frequently misunderstood.

How the S-Corp works for a locum physician:

The physician establishes an LLC that elects to be taxed as an S-Corporation. The S-Corp employs the physician for a "reasonable salary" — typically 30 to 40 percent of total locum income at physician income levels. The physician receives a W-2 from their own S-Corp for this salary. Social Security and Medicare taxes apply to the salary only. Remaining locum income is taken as S-Corp distributions — not wages, therefore not subject to self-employment tax.

The reasonable salary requirement:

The IRS requires that S-Corp owner-employees pay themselves a "reasonable salary" for services rendered — they cannot take all income as distributions and pay zero SE tax. For a physician, "reasonable salary" is typically defined as a salary comparable to what they would earn as an employee in their clinical role. The IRS scrutinizes physician S-Corp arrangements where the salary is set suspiciously low.

A reasonable approach for most locum physicians: salary of approximately 30 to 40 percent of gross locum income, distributions making up the remaining 60 to 70 percent. At $350,000 in locum income, a $120,000 to $140,000 W-2 salary is defensible for most specialties when documented with market salary data.

The annual SE tax savings from S-Corp:

At $350,000 total locum income with $130,000 W-2 salary:

• SE tax on $130,000 W-2 (shared between S-Corp as employer and physician as employee): approximately $16,900
• SE tax on $220,000 distributions: $0
• SE tax saved versus sole proprietor: approximately $14,200 to $16,600 annually

Experienced locum physician Dr. Rip Patel states: "If it makes sense, you can be taxed as an S-Corp rather than as a disregarded entity. This requires some additional administrative work to ensure compliance with the IRS, but it could potentially save you money on your self-employment taxes."

The S-Corp compliance costs:

The S-Corp structure requires additional annual compliance: payroll processing for the W-2 salary (typically $500 to $1,500 annually through a payroll service like Gusto or ADP), S-Corp tax return filing (Form 1120-S, typically $1,000 to $2,500 in CPA fees), and quarterly payroll tax deposits.

Total annual S-Corp compliance cost: approximately $2,000 to $4,000.

The break-even point for S-Corp election:

The S-Corp makes financial sense when SE tax savings exceed compliance costs. At $350,000 in locum income with $15,000 in annual SE tax savings and $3,000 in compliance costs: net annual benefit of approximately $12,000.

The general threshold: the S-Corp election makes financial sense for locum physicians earning above $80,000 to $100,000 annually in net locum income — below that threshold, the compliance costs typically exceed the SE tax savings.

The Solo 401(k): The Most Powerful Retirement Tool for Locum Physicians

With the Solo 401(k), you have an employee deferral and you have an employer contribution. You're wearing two hats — employer and employee. The employee deferral for 2026 is $24,500. The profit sharing portion is generally 25 percent of profit or your W-2 if you are an S-Corp, whichever is less.

A Solo 401(k) allows contributions of up to $72,000 in 2026 — combined employee and employer contributions for those under age 50.

For a physician 50 or older: the catch-up contribution adds $11,250 to the employee deferral limit for a total potential Solo 401(k) of $83,250 in 2026 for physicians in the 60 to 63 age bracket under SECURE 2.0 provisions.

The Solo 401(k) contribution calculation at $350,000 net locum income (S-Corp structure):

• Employee deferral (from W-2 salary): $24,500
• Employer profit-sharing (25% of W-2 salary of $130,000): $32,500
• Total Solo 401(k): $57,000

At a 37% marginal federal rate: $57,000 in contributions saves approximately $21,090 in federal income taxes in the contribution year — a same-year return of 37% on every dollar contributed.

The Solo 401(k) versus SEP-IRA for locum physicians:

Many physicians default to a SEP-IRA for simplicity. The SEP-IRA allows only employer contributions of up to 25% of net self-employment income — no employee deferral component. On $350,000 net locum income, the SEP-IRA maximum is approximately $62,000 in a sole proprietor structure.

The Solo 401(k) beats the SEP-IRA in two important situations:

1. When the physician also has W-2 employment income: The employee deferral portion of the Solo 401(k) is coordinated across all plans — if the physician contributed $24,500 to their employer's 401(k) during the year, they cannot make an additional $24,500 employee deferral to their Solo 401(k). However, they can still make the employer profit-sharing contribution. The SEP-IRA has no such coordination flexibility — it only allows employer contributions.
2. When income is lower: At $100,000 in net locum income, the SEP-IRA maximum is $25,000 (25% of income). The Solo 401(k) allows $24,500 employee deferral + 25% employer contribution = $49,500 — nearly double the SEP-IRA at the same income level.

The Roth Solo 401(k) option:

Some Solo 401(k) plan providers offer a Roth contribution option for the employee deferral component. This allows the physician to contribute up to $24,500 as Roth (after-tax) contributions — tax-free growth and tax-free withdrawals in retirement — alongside traditional (pre-tax) employer contributions. For physicians who expect high income in retirement (from rental real estate, Social Security, practice distributions), the Roth Solo 401(k) provides tax diversification that the traditional Solo 401(k) does not.

Setting up a Solo 401(k):

Solo 401(k) plans are offered by Fidelity, Vanguard, Schwab, and third-party administrators like MySolo401k. The account must be established before December 31 of the tax year in which you want to make contributions — not at tax filing time. Contributions can be made up to the tax filing deadline including extensions.

For physicians with more complex structures — multiple income sources, spouse's income, defined benefit plan interest — consult a CPA who specializes in physician client tax planning before establishing the Solo 401(k) to ensure the contribution strategy is fully optimized.

Health Insurance: The Options and the Deductibility

The employed physician who receives employer-provided health insurance does not think about this cost. The locum physician pays for it directly — and the structure of that payment matters for both coverage and taxes.

The four health insurance options for locum physicians:

Malpractice Insurance: What Locum Physicians Need to Know

Ensure you have appropriate medical licenses, DEA certificates, and malpractice coverage for your side work. Many platforms and agencies provide tail coverage.

Malpractice insurance for locum physicians is more complex than most agencies explain at the time of placement — and the consequences of inadequate coverage can be financially devastating.

Agency-provided malpractice (most common):

Most locum tenens agencies provide malpractice insurance for physicians working through their platform. This coverage is typically a claims-made policy with the agency as the named insured, covering the physician for claims arising from services performed during the agency assignment.

The critical question to ask about any agency-provided policy: who pays for tail coverage when the assignment ends?

Under a claims-made policy, coverage ends when the policy expires — typically when the assignment ends. Any claim filed after the assignment ends for an incident that occurred during the assignment requires tail coverage. Most agencies include tail coverage in their malpractice arrangements, but the specific terms must be confirmed in writing before accepting any assignment.

If the agency's policy does not include tail, the physician needs to purchase their own occurrence policy or supplemental tail endorsement — adding $5,000 to $50,000 in annual malpractice costs depending on specialty.

Individual occurrence policy as an alternative:

Some full-time locum physicians purchase their own occurrence malpractice policy — which provides permanent coverage for any incident occurring during the covered period regardless of when the claim is filed. No tail needed when assignments end. The premium is higher than claims-made equivalent ($20,000 to $80,000 annually for surgical specialties), but the tail coverage problem is permanently eliminated.

Tax treatment: Malpractice insurance tail coverage and occurrence-based malpractice premiums are deductible business expenses — one of the larger recurring costs for many locum physicians.

The state licensure consideration for malpractice:

Each state requires a separate medical license. Most malpractice policies specify which states they cover. A physician working locum assignments in Texas, Florida, and Nevada — three separate state licenses — needs confirmed coverage in each state for the specific assignment periods. Verify with the agency or your own insurer that coverage is confirmed in every state where you practice.

The Complete Locum Physician Deduction List

Locum tenens physicians can access deductions unavailable to W-2 employees, including health insurance, HSAs, home office expenses, professional supplies, CME costs, and mileage.

Here is every major deduction category available to the self-employed locum physician in 2026:

Multi-State Tax Filing: The Locum Physician's Unique Complexity

Most physicians file taxes in one state. Locum physicians who work in multiple states file returns in every state where they earned income during the tax year — and the allocation rules are state-specific.

The general rule: A physician who works 90 days in Texas, 60 days in Florida, and 45 days in Nevada has income attributable to each state based on the days worked or income earned in each state. Texas and Florida have no income tax — income earned in those states produces no state tax obligation. Nevada also has no state income tax. Working exclusively in no-income-tax states during locum assignments is a meaningful tax planning opportunity.

States with income tax and locum implications:

California, New York, New Jersey, Minnesota, and Oregon have some of the highest state income tax rates. A physician who accepts a 30-day locum assignment in California — at California's effective rate for physician-level income of approximately 10 to 13% — owes California state income tax on the income attributable to that assignment.

The non-resident income tax return:

Most states require a non-resident income tax return for any income earned in that state above a minimal threshold. A physician working in 5 states in a calendar year files 5 state income tax returns — their home state return plus non-resident returns for each state where income was earned. Tax preparation software handles most of this, but the CPA cost increases with the number of states.

PSLF and Locum Tenens: The Most Important Interaction Nobody Talks About

For physicians with significant federal student loan debt, the PSLF interaction with locum tenens work is the most financially consequential variable in the locum decision — and almost no content addresses it specifically.

The fundamental conflict:

PSLF requires employment at a qualifying nonprofit or government employer and qualifying IBR/IDR payments made while working for that employer. Locum tenens physicians are self-employed independent contractors — not employees of qualifying employers. Locum tenens income does not generate PSLF qualifying payments.

A physician who leaves a hospital-employed position at a qualifying nonprofit and transitions to full-time locum tenens practice stops accumulating PSLF qualifying payments the day their employment ends. Every month of locum practice is a month without a qualifying PSLF payment — potentially forfeiting $1,000 to $5,000 in forgiveness value per month depending on the remaining loan balance and the phase of the PSLF track.

The calculation that matters:

A physician with $280,000 in federal loans who has accumulated 96 qualifying PSLF payments (8 years into PSLF, with 24 payments remaining) transitions to full-time locum work. The value of those 24 remaining payments — if completed — is the tax-free forgiveness of the remaining loan balance, approximately $300,000 to $350,000.

• The locum income premium over employed medicine: perhaps $80,000 to $120,000 per year in higher gross compensation. After-tax (even with S-Corp optimization), perhaps $55,000 to $80,000 per year in additional net income.
• Over 2 years of locum work: $110,000 to $160,000 in additional net income.
• The PSLF forgiveness given up: $300,000 to $350,000 in tax-free loan forgiveness.

This calculation changes dramatically when the physician is in the early stages of PSLF (1 to 3 years into the track) — at that point, the locum income premium over many years may exceed the eventual forgiveness value. But for physicians within 2 to 4 years of PSLF completion, locum transition is an extraordinarily expensive decision when the PSLF cost is included.

For the complete PSLF calculation including how to model the break-even between locum income and PSLF forgiveness at different stages of the qualifying payment track, see our PSLF vs. Refinancing guide.

The hybrid approach:

Physicians who want locum flexibility while preserving PSLF eligibility can structure a part-time or per-diem arrangement at a qualifying employer that maintains qualifying employment — and supplement with locum shifts at unrelated facilities that do not constitute their primary employment. Whether this hybrid structure satisfies PSLF's full-time employment requirement depends on the specific employment structure and must be evaluated with a student loan specialist before implementation.

The Quarterly Estimated Tax Payment: The Obligation Most New Locum Physicians Miss

Since taxes are not automatically withheld from locum income, locum tenens physicians must pay quarterly estimated taxes to the IRS.

The quarterly estimated tax payment schedule for 2026:

• April 15, 2026: First quarter (January 1 – March 31)
• June 16, 2026: Second quarter (April 1 – May 31)
• September 15, 2026: Third quarter (June 1 – August 31)
• January 15, 2027: Fourth quarter (September 1 – December 31)

The safe harbor calculation:

The IRS does not penalize physicians for underpayment of estimated taxes if they meet one of two safe harbor rules:

1. They pay at least 100% of the prior year's total tax liability through withholding and estimated payments (110% if prior year AGI exceeded $150,000)
2. They pay at least 90% of the current year's actual tax liability

For most locum physicians, the 110% of prior year safe harbor is the most reliable approach — it requires knowing only last year's tax bill, not this year's estimated income. Calculate 110% of last year's total tax liability, divide by 4, and pay that amount quarterly.

The reserve account:

Set aside at least 25 to 30 percent of your earnings to cover federal and state taxes. For physician-level locum income in the highest federal bracket, 30 to 35 percent of gross income is a more appropriate reserve rate. Open a dedicated savings account for tax reserves — transferring 33% of every locum payment received — and use that account exclusively for estimated tax payments. The remaining locum cash flow is free for business expenses, retirement contributions, and personal spending.

The Financial Profile of Fully-Optimized Locum Medicine

Here is what fully optimized locum tenens finance looks like for a hospitalist earning $350,000 annually:

The same physician in a traditional W-2 employed position earning $380,000 gross (employer adds $30,000 in value through benefits):

• Federal + state taxes: approximately $140,000
• 401(k) contribution available (employer + employee): $37,000
• Net take-home: approximately $200,000
• Total wealth built: approximately $237,000

The fully optimized locum structure produces approximately $78,000 more in annual wealth accumulation on comparable clinical work — primarily through the S-Corp SE tax savings, the larger Solo 401(k) contribution, and the deduction landscape unavailable to W-2 employees.

Frequently Asked Questions