A physician’s guide to working as an independent contractor: How locums pay, malpractice, and taxes
December 04, 2023)
This is part four in a five-part series on everything a physician needs to know about working as an independent contractor. If you missed previous articles, you can read them here:
Part One: Getting started with locum tenens
Part Two: Working with a locum tenens agency
Part Three: How to prepare for a locum tenens assignment
Part four: How locum tenens pay, malpractice, and taxes work
While locum tenens can make certain aspects of life easier, like flexible scheduling and being able to choose your own assignments, it also comes with some differences to keep in mind, too. Namely, pay, malpractice, and taxes all need to be considered and planned for when working locums.
How locum tenens pay works
Your locum tenens agency, not the facility where you’re working, pays your salary. CompHealth providers enter their time in the MyCompHealth portal and are paid weekly through direct deposit. Your pay rate is outlined in the confirmation letter you received from the agency when you agreed to take a locum tenens assignment.
While locum tenens pay is typically much higher than hourly pay for a salaried employee, it’s important to note that a physician independent contractor must also pay their own taxes and cover other benefits, including retirement plans and health and life insurance.
Curious about the pay range for locum tenens physicians? Rates vary based on specialty, state, type of facility, and skill set, but you can use the Locumstory specialty tool to see an average salary, schedule, assignment length, and the demand for your specialty.
Find out more: How does locum tenens pay and salary work for physicians?
How health insurance works for locum tenens physicians
Because locums are independent contractors, they don’t receive a benefits package. This doesn’t affect locum tenens providers who take jobs on the side while continuing their full-time employment, but it can be a concern for those who do not have coverage through another employer.
Options for finding locum tenens health insurance include:
Having your partner or spouse add you to their employer-sponsored benefits plan
Paying COBRA insurance premiums if you are transitioning between permanent jobs
Using HealthCare.gov to enroll in an insurance plan
Looking at professional associations and groups that provide coverage, including the American Medical Association and the National Association for the Self-Employed
Consulting with a local independent insurance agent for coverage
How locum tenens taxes work
Locum tenens taxes can be complicated, especially if you work in more than one state, so it’s a good idea to work with a tax advisor with locum tenens or multi-state filing experience to help you file your taxes.
“Make sure you find a tax preparer who is experienced in your particular situation,” recommends Alexis Gallati, founder of Cerebral Tax Advisors. “You have to make sure you use someone who has experience with multi-state taxation if you’re working in different states. It’s really important they know all of the states’ tax codes.”
Here are a few locum tenens tax basics before you embark on your first locum tenens assignment.
W-2 employees vs. 1099 contractors
Most locum tenens physicians work as independent contractors, which means they receive a 1099 form to report their income. W-2 employees, on the other hand, have their employers take tax payments out of their paychecks automatically. 1099 independent contractors are generally required to pay quarterly taxes.
LLCs, S corps, and other business entities
If you do decide to create a business or tax entity, most locum tenens physicians create an LLC (a business structure that legally separates you and your business) or an S corp (election that indicates how the business is taxed). Your taxes will be essentially the same whether or not you set up a business entity like an LLC, according to accountant Jerry Callahan, who specializes in physician taxes.
Dr. Jim Mock, an emergency medicine physician, says he enjoys tax advantages through his S corp by paying himself a monthly base salary and doing a shareholder distribution if he exceeds his base salary.
No matter what you decide, remember these four things about locum tenens taxes:
Give your agency your form W-9 before beginning your first assignment
Pay income tax on income as you earn it, which means quarterly estimated tax payments
Pay the quarterly estimated tax payments on time (generally on April 15, June 15, September 15, and January 15) or you will pay a roughly three percent tax penalty
Estimate quarterly tax payments at 100% or 110% of your prior-year tax or 90% of your current year
Keep more money in your pocket: Maximizing your locum tenens tax benefits
How does locum tenens malpractice insurance work?
Locum tenens physicians usually receive malpractice coverage from their agency as long as they’re working an assignment for that agency.
CompHealth offers claims-made malpractice coverage, which covers a claim made against the insured provider during the policy period, regardless of when the claim incident occurred. This coverage applies even if you’re no longer working for CompHealth when a claim is made.
Some states also have patient compensation funds (PCFs) that limit liability or act as an extra layer of coverage. A PCF compensates those harmed by medical providers or entities who participate in that state’s fund. Providers working assignments in states with these funds — Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, and Wisconsin — will be enrolled in their state’s PCF.
Find out more: How malpractice insurance works for locum tenens physicians
Nailing down the nuts and bolts of working locums can sound confusing, but it's easy once you get the hang of it. Click below to read the final part of this series and learn more about the different ways physicians can work locum tenens.
Go back to Part Three: How to prepare for a locum tenens assignment
Interested in learning more about locum tenens opportunities? We can help you find your first assignment. Give us a call at 800.453.3030 or view today’s locum tenens job openings.