5 tax tips for locum tenens physicians - filing as an independent contractor
February 7th, 20185 Min read
Tax season is officially here and with the Tax Cuts and Jobs Act changes, it's a good time for physicians who travel to get a quick 1099 checkup. With a little planning and research, you can take a lot of stress and complexity out of filing taxes as a locum tenens provider.
Locum tenens physicians are independent contractors
Locum tenens providers are classified as independent contractors, not employees. This means that because you don't have an employer taking taxes out of each check while you're on assignment, you're responsible for your own estimated tax payments. Instead of the IRS W2 form, you’ll get the IRS 1099-MISC form for annual income reporting.
What you need to know about taxes and 1099 forms as an independent contractor
These are the kinds of things that a good locum tenens agency will help you manage, but here are answers to physician questions that come up most often about the 1099-MISC form.
1. What’s the difference between a 1099 and W2?
When you're an employee, you get a W2 form at the end of every tax year that shows your taxable income and whatever amounts were taken out for taxes and other statutory payments. The IRS says that when a company pays more than $600 in a 12-month period for services by a non-employee, they have to report the total gross compensation on a 1099-MISC form.
2. What if I don’t get a 1099 from a company I worked with?
January 31 is the annual deadline for companies to get 1099 forms into the hands of their independent contractors listing the previous year’s compensation. Reputable staffing companies send the required tax forms to their locum tenens providers, but sometimes a late delivery or minor error happens. It's important to keep your own records of your locum tenens earnings and use these figures to estimate your taxes. if there is a mistake. Contact the company to request a correction and ask for an updated form.
3. Can I deduct expenses when I file a 1099?
The short answer is yes, but figuring out what the IRS considers a business expense can be tricky. With the new Tax Cuts and Jobs Act rules coming into play, it's best to check with a professional tax adviser. You can't deduct any expense paid by a locum tenens company, such as housing or malpractice premiums. You are also not allowed to write off expenses that you are reimbursed for, including mileage. What you usually can deduct are out of pocket costs that aren't reimbursed by the agency. You may also be able to claim deductions for certain expenses above what the staffing company reimburses, and a portion of meal or incidental per diems while on assignment.
Important! Per diem rates change and vary by location. Document everything and check here for government updates.
Download this PDF to learn more about qualified travel expenses.
4. Are there restrictions on travel expenses for independent contractors?
Independent contractors have to maintain a permanent tax home where they pay housing costs and return to live periodically. They also can't work in the same general area for more than one year without a substantial break. Again, with recent rule revisions in play, it's best to check with a qualified tax specialist one what “substantial break” means to the IRS, but it should generally be more than just a few weeks.
5. Do I have to pay estimated taxes?
Pay federal estimated taxes on a quarterly basis if you think you're going to owe more than $1,000 in taxes in a year. Check with a local tax adviser or the tax authority in the states where you live and work to see if they also require estimated quarterly tax payments. There's a little extra paperwork involved, but quarterly payments save you the stress of writing big state and federal checks on tax day.
To give you a physician's perspective, Dr. Beverly Ricker shares her insights on managing taxes as an independent contractor in this short video.
IRS Publications that may be helpful
These free IRS reference publications might be useful as you put your tax plan together. You can find the latest versions at irs.ustreas.gov:
Starting a Business and Keeping Records (Publication 583)
Business Use of Your Home (Publications 587)
Tax Guide for Small Businesses (Publication 334)
Tax Withholding and Estimated Tax (Publication 505)
Retirement Plans for Small Business (Publication 560)
Travel, Entertainment, Gift, and Car Expenses (Publication 463)
Per Diem Rates (Publication 1542)
Remember, whenever you have questions regarding the IRS or your tax status, always consult with a professional tax adviser. Do you have a tax story to share with your fellow providers? We'd enjoy hearing about your experiences here, or join the conversation on Facebook. What's the biggest challenge you face keeping track of your taxes and finances as a locum tenens provider?
Disclaimer: The above information has been condensed from various sources generally available to the public that is subject to change, and is general in nature for which the propriety may depend on personal facts and circumstances. Tax information contained in this document is not intended to be used, and cannot be used, by any person as a basis for avoiding tax penalties that may be imposed by the IRS or any state. We recommend each taxpayer seek advice based on their circumstances from a qualified independent tax adviser.
Tim McDonnell is a content developer at CompHealth and loves bringing people together with stories that make a difference. After hours, Tim is a book, movie, and music enthusiast and will seize just about any opportunity to travel.