Clinicians who work locum tenens manage their income differently than traditional employees. As 1099 independent contractors, physicians, nurse practitioners, and physician assistants are responsible for their own income, taxes, and long-term planning. To build lasting wealth from contract work, it's important to pay close attention to changing income, taxes, retirement planning, business setup, and expenses.
You're a Business Owner Now
Moving from a W-2 employee to a locum tenens worker means you become a business owner. Your finances now include not just your pay, but also your business structure, liability, and long-term planning. Choosing a business structure like a Sole Proprietorship, S-Corp, or LLC affects your liability protection, taxes, and how much paperwork you have. S-Corps and LLCs can help keep your personal and business assets separate and may offer tax benefits, such as letting you pay yourself a salary and take distributions to lower self-employment taxes.
Taming the Tax Beast
As a 1099 contractor, your income is not automatically taxed, so you are fully responsible for handling your own taxes. Making quarterly estimated payments to the IRS and your state helps you manage changing income, travel stipends, and other earnings, and it can help you avoid penalties. Self-employment taxes, business expenses, retirement contributions, and health insurance premiums all affect your taxable income, so it's important to keep good records and plan ahead.
Supercharging Your Retirement
A big benefit of locum tenens work is having access to strong retirement options, like the SEP IRA and Solo 401(k), for independent contractors. With a Solo 401(k), you can contribute as both the employee and employer, and there are Roth options for tax-free growth. The SEP IRA is simpler and lets you contribute up to 25% of your net earnings. Both accounts offer flexibility and tax benefits, helping you save more for retirement. If you set up your retirement plan well, you can save a lot during your highest-earning years and still adjust as your contracts and goals change.
Replacing Your Benefits
Locum tenens workers need to get their own benefits, since they don't have an employer providing them. Health insurance protects you from unexpected medical bills, so look for a plan that fits your specialty and consider adding an "own-occupation" rider for extra protection. Disability insurance helps replace your income if you can't work due to illness or injury. Life insurance protects your family, and term policies are often an affordable way to get coverage for a set time.
Malpractice insurance is essential. Even if your agency gives you coverage, check the limits and think about getting extra policies for full protection. You can also add benefits like dental, vision, and more retirement contributions to support your finances and well-being. Taking a careful approach to your benefits helps you stay secure, even when your income or assignments change.
Deductible Business Expenses
As a 1099 contractor, you can lower your taxable income by taking advantage of different tax deductions. Some common deductible expenses are:
Licenses and certifications: Fees for maintaining your medical credentials.
Continuing Medical Education (CME): Costs for conferences or courses to maintain your credentials.
Travel expenses: Deductible if you travel for work, including airfare, lodging, and meals.
Uniforms and scrubs: Deductible if required for your work.
Home office expenses: If you use a specific area in your home for work tasks, you might be able to deduct part of your rent, utilities, and internet as a home office expense.
Empowerment Through Financial Independence
While managing finances as a locum tenens worker can be complex, the benefits are often worth it. Take this chance to take charge of your financial future and use the resources available to you.
The Solo 401(k) is a powerful option for retirement savings. By contributing as much as you can and using tax-deferred growth, you can move faster toward financial independence.
Take Control of Your Finances as a Locum Tenens Worker
Becoming a 1099 contractor as a locum tenens worker brings new financial opportunities and responsibilities. If you learn about your tax duties, save for retirement, get the right benefits, and use tax deductions, you can take charge of your financial future.
Learn as much as you can and plan ahead to succeed in your locum tenens career. If you need more help, reach out to us at HEFCU to see how we can support you with your finances.
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