Doctors earn well and keep less of it than they expect. Training years, high income, and a tax code built for other kinds of earners all play a part. The picture gets more complicated if you work outside a hospital payroll.
This guide covers accounting and taxes for doctors who earn income on their own. That includes independent contractors, locum tenens physicians, doctors who moonlight, telehealth physicians, and solo practice owners. If your only income is a W-2 from a hospital, your options are more limited, and a CPA who focuses on physicians is the better resource. Tax outcomes vary by situation, so confirm specifics with a tax professional.
Which Type of Doctor Are You, Tax-Wise?
Your tax situation depends on how you’re paid. Most doctors fall into one of these groups, and many fit more than one.
| Type | How you’re paid | What it means for taxes |
|---|---|---|
| Employed physician | W-2 from a hospital or group | Taxes are withheld. Few deductions are available |
| Moonlighter | W-2 plus 1099 side income | You owe tax on the side income yourself |
| Locum tenens | 1099, often from an agency | You’re self-employed. You pay both halves of payroll tax |
| Telehealth or contract physician | 1099 from a platform or health system | Same as above |
| Solo practice owner | Patient and insurance revenue | You run a business with its own books, payroll, and return |
| Consultant or expert witness | 1099 or direct invoices | Self-employment income with business expenses |
The more of your income that arrives without withholding, the more the rest of this guide matters.
How Doctors Pay Self-Employment Tax
If you earn 1099 income, you owe self-employment tax. It’s 15.3% of 92.35% of your net profit: 12.4% for Social Security and 2.9% for Medicare. Our guide to self-employment tax breaks down the math.
The Social Security portion only applies up to an annual cap, which is $184,500 for 2026 according to the Social Security Administration. Many physicians earn more than that.
Moonlighting on top of a W-2 salary
Your W-2 wages and your self-employment income share one Social Security cap. If your W-2 wages already reach $184,500, your side income owes only the Medicare portion.
Here’s an example for a single filer. Say your W-2 wages are $250,000, and you earn $40,000 in net profit from locum shifts on top.
- $40,000 × 92.35% = $36,940
- Social Security tax: $0, because your wages already exceed the cap
- Medicare portion of self-employment tax: 2.9% × $36,940 = $1,071
- Additional Medicare Tax: 0.9% × $36,940 = $332, because your wages already exceed the $200,000 threshold for single filers
- Total self-employment tax plus Additional Medicare Tax: about $1,400
That total covers self-employment tax and Additional Medicare Tax only. It doesn’t include federal or state income tax, which you’d owe on top. Income tax is usually the larger piece. At a $250,000 salary, your side income likely lands in a high federal bracket, so plan to set aside well over the 25% to 30% that’s typical for other freelancers. For comparison, if that same $40,000 were your only income, you’d owe about $5,650 in self-employment tax. The Additional Medicare Tax is reported on Form 8959, not Schedule SE. If your W-2 wages fall between $184,500 and $200,000, the total comes out a little lower.
Your actual number depends on your filing status and total income, so run it with your CPA.
Business Structure: LLC, PLLC, and S Corp
Many states require physicians to practice through a professional entity, such as a professional LLC (PLLC) or professional corporation (PC), instead of a standard LLC. Rules vary by state, so check with a healthcare attorney before you form anything.
These entities can still elect S Corp status. The election changes how the business is taxed, not how it’s formed. Our guide to choosing between an LLC and an S Corp explains the difference.
Does an S Corp Make Sense for Doctors?
Sometimes, but the math is different for physicians than for most freelancers.
With an S Corp, you pay yourself a reasonable salary through payroll. You take the rest as distributions, which aren’t subject to self-employment tax. The catch is the “reasonable” part. The IRS expects your salary to match what someone would pay for your work. Physician pay is high. The Bureau of Labor Statistics reports some of the highest wages of any occupation.
That cuts into the savings. Here’s an illustration using simplified math and a single filer.
| Sole proprietor | S Corp | |
|---|---|---|
| Net profit | $300,000 | $300,000 |
| Reasonable salary | n/a | $220,000 |
| Payroll or self-employment tax | $31,605 | $29,440 |
| Gross tax savings | about $2,165 |
That saving is smaller than the added cost of payroll, bookkeeping, and a separate business return for many practices. The $220,000 salary is an assumption. Your real number depends on your specialty, hours, and location.
An S Corp tends to work better for doctors in these situations:
- You have a side business, such as consulting, expert witness work, or a separate practice, where a lower salary is defensible
- Your net profit is high, but you work part-time in the business
- You employ staff, and your entity needs payroll anyway
Our guides on reasonable salary and what an S Corp costs can help you test the numbers.
Quarterly Estimated Taxes
Nobody withholds tax from your 1099 income, so you pay as you go. The IRS expects estimated payments in April, June, September, and January. Our guide to estimated taxes covers the schedule.
High earners face a stricter rule. If your adjusted gross income is over $150,000, the safe harbor is 110% of last year’s tax, not 100%. Pay at least that amount, and you generally avoid an underpayment penalty. The IRS safe harbor rules explain the details.
If you also have a W-2 job, you can raise your withholding at work to cover tax on your side income. Withholding counts as paid evenly across the year, which helps avoid penalties.
Deductions Doctors Often Miss
Only ordinary and necessary business expenses qualify, and you need records to back them up. Common ones for independent physicians include:
| Category | Examples |
|---|---|
| Licenses and certifications | State medical license, DEA registration, board certification and maintenance fees |
| Professional dues | AMA, state medical society, specialty society memberships |
| Continuing medical education | Courses, conferences, and related travel |
| Malpractice insurance | Premiums, including tail coverage |
| Equipment and supplies | Medical instruments, supplies, scrubs and required work clothing |
| Technology | EHR, billing, telehealth platforms, secure messaging |
| Office costs | Rent, utilities, a home office used regularly and exclusively |
| Staff and contractors | Wages, billing services, a bookkeeper, a CPA |
Our guides to self-employed tax deductions and the home office write-off go deeper.
Travel for locum tenens work
Locum physicians can often deduct travel, lodging, and meals while working away from home. The rules depend on your “tax home” and whether an assignment is temporary. A long assignment can change the answer. IRS Publication 463 covers travel expenses. When a Collective member, our team can help you determine if a trip qualifies.
Retirement and Health Insurance
Self-employed doctors can use retirement plans that employees can’t. Options include a solo 401(k), a SEP-IRA, and, for high earners, more advanced plans. Contributions can lower your income tax. Plan details and limits change every year, so work with a financial advisor or CPA to choose one. Our guide to retirement plans for S Corp owners is a good starting point, and health insurance for S Corp owners explains how premiums work in that structure.
The QBI Deduction and Doctors
The qualified business income (QBI) deduction can let pass-through business owners deduct up to 20% of qualified income. Health care is a “specified service” business, so the deduction phases out as your taxable income rises. Many high-earning physicians get a reduced deduction or none. Thresholds adjust each year, so check the IRS QBI page or ask your CPA. Our guide on the QBI deduction for S Corp owners has more.
Working in More Than One State
Locum and telehealth physicians often earn income in several states. That can mean filing nonresident returns in each one. Keep a log of where you worked and how many days. Your CPA will need it.
Bookkeeping for a Medical Practice
Good books make tax time simple. Start with these habits:
- Open a separate business bank account. See our guide to business bank accounts for solopreneurs.
- Record gross income. Payment processors and insurers often take fees before they pay you. Record the full amount as income and the fees as an expense.
- Track insurance payments by payer. Reimbursements can arrive weeks after a visit.
- Review monthly. A 30-minute routine beats a year-end scramble.
- Protect patient information. Keep names and diagnoses out of your financial records. If a bookkeeper can see protected health information, ask whether a business associate agreement is required. The HHS guidance on business associates explains when.
If you hire contractors, such as a billing specialist, collect a Form W-9 first. For payments made in 2026, the federal threshold for a Form 1099-NEC is $2,000 per contractor. Keep records using the IRS recordkeeping guidance.
When to Hire Help
It is time to outsource when your income is above what a spreadsheet can handle or when you’re choosing an entity. Collective works with doctors across the country, and can help ensure your back office stays compliant and maximizes your deductions.
Whether working with Collective or a CPA, ask these questions before you hire:
- Do you work with physicians? You want someone who understands practice structures.
- Can you advise on PLLC or PC and S Corp elections in my state?
- How do you handle multi-state income?
- Will you help with quarterly estimates? High earners face stricter safe harbor rules.
- How do you protect patient information?
- How often will we talk? Find out if you get year-round access or only tax season.
- What’s included in the fee? Get the scope in writing.
Frequently Asked Questions
Do doctors pay self-employment tax?
Yes, on net profit from independent work. Employed doctors pay payroll tax through their employer instead. If your W-2 wages already exceed the Social Security cap, your side income owes only the Medicare portion.
Should a doctor form an LLC or an S Corp?
It depends on your state, your income, and how you’re paid. Many states require a professional entity. An S Corp election can help in some situations, but a high reasonable salary shrinks the savings for full-time physicians.
What can doctors write off?
Licenses, board fees, malpractice insurance, continuing education, professional dues, equipment, software, and office costs can qualify if they’re ordinary and necessary for your work.
Do locum tenens doctors need to pay estimated taxes?
Usually yes. Locum income is typically 1099 income with no withholding. High earners should pay attention to the 110% safe harbor rule.
Can a doctor use the QBI deduction?
Possibly, but health care is a specified service business. The deduction phases out at higher income levels, so many physicians receive a reduced amount or none.
Do I need to hire help, or can I use software?
Software works for simple situations. Outsourcing to a team like Collective becomes more valuable with a practice entity, multiple 1099s, or income above the thresholds where tax rules change.
Making Physician Finances Simpler
Independent doctors face high income and complex rules. The basics help most: keep money separate, pay estimated taxes on time, track every deduction, and choose your structure with real numbers.
Collective is the all-in-one back office built for solopreneurs, including independent physicians and solo practice owners. We handle bookkeeping, quarterly tax guidance, payroll, and your business and personal tax returns. Estimate Your Tax Savings →
