Managing Your Taxes and Benefits as a Locum Tenens Physician
Assignments for locum tenens physicians are often set up as independent contractor arrangements. For several reasons, the independent contractor relationship is better for the physician and for the facilities that employ them.
Locum tenens physicians must manage their own taxes and benefits, but for most, it’s well worthwhile.
An independent contractor realizes a personal gain as a result of his or her work, and may work for more than one provider at the same time. For these reasons, it makes the most sense for locum tenens physicians to work as independent contractors. Consequently, they must handle for themselves what the HR department would handle in a traditional employee-employer relationship.
Coping with Taxes as an Independent Contractor
When you work locum tenens, you are responsible for paying your own taxes rather than having them automatically deducted from your paychecks. Because of this, your paycheck may appear larger than it would if you were employed by the facility. You can’t neglect paying taxes, or you could find yourself in trouble with the Internal Revenue Service (IRS).
As an independent contractor, you can take many deductions that you couldn’t if you were a traditional employee. At the same time, you are expected to predict your yearly income and pay taxes on part of that estimated amount every quarter. Then, when you file your income taxes in April, you reconcile those quarterly taxes you paid with what your final yearly income indicates you should have paid. It isn’t difficult, but it can be time-consuming, so many independent contractors work with an accountant to estimate and reconcile taxes.
Covering Your Own Insurance Needs
Rather than receiving health and life insurance through your employer as traditional employees do, you must purchase these yourself. For life insurance, your best bet is often to consult with an independent insurance agent, who can take into your account your lifestyle and your dependents and help you determine which life insurance policy makes the most sense for you.
Many locum tenens physicians and other independent contractors purchase health insurance on their state’s healthcare exchange through the Affordable Care Act (ACA). Depending on how much you expect to earn in a year, you may or may not be eligible for tax credits to help you pay your premiums. Your safest bet is to sign up under the ACA during the yearly open enrollment period in November and December, but you may qualify for a special enrollment period at another time in the year depending on your circumstances.
Locum tenens physicians who can’t obtain insurance through a spouse can usually qualify for plans under the ACA.
Retirement Planning for the Independent Contractor
Planning for your retirement is every bit as important to the independent contractor as it is to the traditional employee, though it can be easy to set this aspect of self-employment aside for later. Don’t give in to the temptation to put off retirement planning, because it can help your tax situation while it helps ensure you are able to retire comfortably.
Options for retirement investing include the Savings Incentive Match Plan for Employees (SIMPLE) IRA. Other possibilities include the Simplified Employee Pension (SEP) IRA, Solo 401(k), Roth IRA, and traditional IRA.
State Licensing and State Income Taxes
When you take a locum tenens job in a state in which you are not licensed, your locum tenens agency generally helps you with obtaining state licensure and any other credentialing that may be required by a facility you’re assigned to. When you take locum tenens jobs in multiple states over the course of a tax year, generally each of those states gets to tax a proportion of your income. As you may imagine, this can make tax planning and payment of taxes significantly more complicated. Enlisting in the help of a certified accountant with experience serving independent contractors is a wise move to ensure you don’t run afoul of state tax collectors.
Locum tenens physicians can enjoy many intangible benefits that aren’t necessarily available to traditionally employed physicians. For example, locum tenens physicians have greater control over their schedules and work hours, and many have better work-life balance. Along with locum tenens work comes responsibilities such as tax planning, insurance planning, and retirement planning. Deal proactively with all of these from your very first locum tenens assignment and you won’t be overwhelmed when it’s time to pay income taxes in the spring. If you’re interested in the flexibility and other benefits of locum tenens work, we encourage you to schedule a consultation so we can discuss your best options.