Disclaimer: The information provided in this guide is meant for informational purposes only and should not be considered tax advice. You should consult a tax professional or certified public accountant (CPA) who can advise you based on your unique tax situation.
As a locum tenens provider, you travel to short-staffed healthcare facilities across the United States on temporary assignments to provide critical care to patients who need it the most. But, as a traveling provider, you are not a full-time employee of any one company or healthcare system—instead, you are considered an independent contractor, which comes with unique tax implications. If this is your first time dealing with taxes as a locum tenens provider, or if you’re a veteran who needs a refresher, we have you covered. We recently held a webinar on tax preparation for locum tenens providers with Andrew D. Schwartz, a certified public accountant (CPA) from Schwartz & Schwartz, P.C. that you can watch below:
View the slides Andrew used during the webinar by clicking here.
We’re also answering some of the most frequently asked questions about taxes for independent contractors—read on to learn more!
What is an independent (1099) contractor?
An independent contractor is a worker who is either self-employed or contracted to perform work for another business as a non-employee. As a locum tenens provider with Barton Associates, you are classified as an independent contractor, as you are technically contracted out to provide services for our healthcare clients.
An independent contractor’s earnings are reported on what’s known as a Form-1099-NEC, which is different from the Form W2 that traditional, full-time employees are accustomed to receiving at the end of each year.
What can I deduct from my taxes as an independent contractor?
One of the biggest advantages of being an independent contractor is there are fewer restrictions on deducting business expenses. This can go a long way toward reducing your taxable income and minimizing your tax burden. Here are some deductible professional expenses commonly incurred by locum tenens providers:
- Health Insurance
- As long as you’re not covered under an employer-sponsored health insurance plan, being an independent contractor allows you to write off 100% of your health insurance premiums paid during the year.
- Travel, Lodging, and Meals
- Unreimbursed travel, lodging, and 50 percent of meal costs incurred during a locum job outside the general vicinity of where you live are deductible. However, the job must be for a specific period of less than one year, and you must intend to return to the city in which you were living prior to the assignment. You are not allowed to deduct any expenses that were reimbursed by the locum tenens agency or facility at which you were assigned.
- Automobile Expenses
- Driving between job sites is deductible. So is driving between your home and a temporary job site, job interviews, and conferences. Commuting between your home and a regular place of business generally isn’t tax deductible. But, if you traveled to a locum tenens job using your own car and were not reimbursed, you can deduct automobile expenses.
- Education, Licenses, and Examinations
- Costs incurred in connection with improving your skills in your current profession (e.g., continuing medical education) are generally deductible while costs incurred to qualify for a new trade or business isn’t deductible.
What taxes do independent contractors owe?
In general, independent contractors like locum tenens providers will owe federal, state, and self-employment taxes. Unlike workers who receive a Form W2, federal and state taxes aren’t automatically taken from your paycheck.
To ensure you have enough money saved to cover your tax liability, consider following the “40 Percent Rule,” which says you should set aside 40% of your income for taxes.
How do I file quarterly taxes?
As an independent contractor, you must pay estimated taxes on a quarterly basis instead of once at the end of every year. If you decide not to pay estimated quarterly taxes or find you didn’t pay enough at the end of the year, you will be subject to a penalty when you file your annual tax return.
Independent contractors use the estimated tax method to pay Social Security, Medicare, and
income taxes when sufficient taxes aren’t otherwise being paid in through withholdings from their or their spouse’s salary.
To figure out what you owe, if anything, you will need the following:
- Last year’s annual tax return.
- Form 1040-ES, Estimated Tax for Individuals (PDF).
Use last year’s return to complete the worksheet in Form 1040-ES and determine your estimated quarterly tax.
If this is your first year as a locum tenens provider, you will need to estimate the amount of income you expect to earn. If you overestimate or underestimate your earnings, simply complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.
How do I calculate self-employment tax as an independent contractor?
In addition to paying state and federal income taxes, you’re also responsible for paying self-employment taxes as an independent contractor. According to the IRS, the self employment tax rate is 15.3%, which is a combination of the Social Security and Medicare taxes you owe. You must pay this quarterly.
How do state income taxes work as an independent contractor?
Essentially, you are responsible for paying state taxes based on the state where you live or work that has the higher tax rate. Here’s how to calculate state income taxes as an independent contractor:
- First, any income you earn is taxed based on the rules of the state in which you work.
- Then, calculate the taxes based on the rules for the state in which you live.
- Finally, take a credit against your resident state’s tax for taxes paid in the states where you worked.
What are tax shelters and how do I take advantage of them as an independent contractor?
A tax shelter is a term used to describe a method through which a person uses to minimize their taxable income. As an independent contractor, there are a few ways you can take advantage of tax shelters:
- Retirement Accounts
- Independent contractors have the option of establishing and contributing money into a pre-tax retirement account based on net locum tenens income. It’s also a great way to build a nest-egg to fund your post-working years!
- Health Savings Accounts (HSAs)
- HSAs help people not only reduce their health insurance premiums, but also build up money within a tax-advantaged savings account. Only individuals or families covered under a high-deductible health insurance plan during the year are eligible to contribute to an HSA.
- Note: Money contributed into an HSA is tax-deductible, and the money invested within grows tax-deferred.
- HSAs help people not only reduce their health insurance premiums, but also build up money within a tax-advantaged savings account. Only individuals or families covered under a high-deductible health insurance plan during the year are eligible to contribute to an HSA.
- 529 Plans
Want more in-depth information about taxes as a locum tenens provider? Download our 2024 Tax Guide for Locum Tenens Providers to read more.
Become a Locum Tenens Provider with Barton Associates
Want to become a locum tenens provider? Check out our open jobs online, or reach out to us today to get started.
