The first time a physician shows us a locums paycheck, the reaction is almost always the same. No taxes were withheld, the full amount is sitting in the account, and it feels like a raise. Then the next April, the bill for all of that untaxed income shows up, and it stops feeling like a raise.
We work with locums and 1099 physicians constantly, and the gap between that paycheck and the eventual tax bill is the part worth planning for. The medicine hasn’t changed. The tax rules around your income have. You’re running a small business now, even if you haven’t thought of it that way, and a handful of rules decide whether that goes smoothly. Here’s what changes, using 2026 figures.
In this article
What does getting paid on a 1099 really change about your taxes?
How much of your income gets hit by self-employment tax?
How do quarterly estimated taxes work when no one withholds for you?
What retirement account can a 1099 physician actually use?
Can a locums physician take the 20% QBI deduction?
What does this look like for a real physician?
What about working across multiple states?
What does getting paid on a 1099 really change about your taxes?
The biggest change is self-employment tax. On a W-2, you and your employer split Social Security and Medicare. On a 1099, there’s no employer on the other side, so you cover both halves yourself. That’s 12.4% for Social Security (up to the Social Security Cap) plus 2.9% for Medicare, a combined 15.3% on your net earnings, on top of income tax.
The word to underline there is “net.” Self employment tax applies to your net earnings, meaning your business income minus the ordinary and necessary expenses of running that business. So the expenses tied to your locums work, malpractice coverage, licensing, credentialing, and travel between assignments, reduce the income that both income tax and self employment tax are figured on. Tracking them is the most direct lever you have.
There’s also an offset built into the code. You can deduct one half of your self employment tax when you figure your income, which softens paying both halves.
One point worth being clear about: going 1099 isn’t automatically cheaper or more expensive than a W-2 job. It adds self employment tax, and whether you come out ahead depends on your deductions, retirement contributions, benefits, and situation. It’s a different tax picture, not a better or worse one by default.
How much of your income gets hit by self employment tax?
Not evenly, and that’s where a little planning helps. The two halves behave differently:
- The 12.4% Social Security portion applies only up to the annual wage base, which is $184,500 for 2026. Past that point, the Social Security piece stops.
- The 2.9% Medicare portion has no cap. It applies to every dollar of net earnings.
On top of that, higher earners owe an additional 0.9% Medicare tax on earned income above $200,000 for single filers or $250,000 for married couples filing jointly. Those thresholds are fixed in the statute and never adjust for inflation, so more physicians cross them every year.
So the Social Security piece has a ceiling and the Medicare pieces don’t. A high-earning locums physician keeps paying Medicare tax on every extra dollar.
How do quarterly estimated taxes work when no one withholds for you?
On a W-2, withholding quietly handles this in the background. On a 1099, nothing is withheld, so you pay as you go, generally in four quarterly estimates.
The rule to know is the safe harbor, which protects you from an underpayment penalty even if you owe more at filing. For higher earners it’s set by last year’s income: if your prior-year adjusted gross income was over $150,000, you generally prepay 110% of last year’s total tax, not 100%. Paying at least 90% of the current year’s tax is the other way in.
Two things are easy to underestimate here: cash flow and timing. Cash flow, because the money is sitting in your account and it’s easy to spend income the IRS already has a claim on. Timing, because a strong locums year can leave last year’s safe harbor number well short of what you’ll actually owe. Set aside a fixed percentage of each payment, revisit it mid-year, and both stay manageable.
What retirement account can a 1099 physician actually use?
This is where 1099 income starts to work for you. As a self employed physician you can open a one-participant 401(k), usually called a solo 401(k), and the room is large. For 2026 it has two layers:
- The employee side: defer up to $24,500. Age 50 or older adds an $8,000 catch-up.
- The employer side: as the business owner, you can also make a profit-sharing contribution. Your combined employee and employer contributions cap at $72,000 for 2026.
A few conditions. The $24,500 employee deferral is per person across all your 401(k) plans, so if you also have a W-2 job with a 401(k), you share one limit between them. The employer piece depends on your net self employment earnings, so you reach the full $72,000 only if your income supports it. And the limits are indexed, so they reset yearly. (If you elect to be taxed as an S Corporation, then retirement contributions would be based on the owner’s W-2 wages.)
Even with those caveats, the solo 401(k) is usually the single biggest opportunity that opens up when you go 1099.
Can a locums physician take the 20% QBI deduction?
You’ve probably heard about the 20% qualified business income deduction and wondered whether your locums income counts. For most physicians, it phases out. Medicine is what the code calls a specified service trade or business, and for those businesses the deduction shrinks once taxable income passes a threshold and disappears above the top of the range. For 2026:
- It starts to phase out once taxable income passes $403,500 for married couples filing jointly, or $201,750 for other filers.
- It’s fully gone at $553,500 for married couples filing jointly, or $276,750 for other filers.
Those numbers track your total taxable income, not just business income, and they’re indexed yearly. Most full time physicians land above the top of the range, so a locums physician usually gets little or none of it. It’s worth checking where you fall, especially in a lighter year or when large retirement contributions pull your taxable income down, but we wouldn’t build a plan around it.
The QBI deduction was once scheduled to expire after 2025, but 2025 legislation made it permanent, so it applies for the 2026 tax year.
What does this look like for a real physician?
Take Dr. Patel, a single locums hospitalist, age 45, with $320,000 of net locums earnings in 2026. These are rounded, illustrative figures, and yours will differ, but they show how the pieces fit:
- Self employment tax: the 12.4% Social Security portion applies only to her first $184,500 of net earnings, so that piece is capped. The 2.9% Medicare portion applies to all $320,000. Because she’s single and over $200,000, the additional 0.9% Medicare tax applies above that line.
- The offset: she deducts one-half of the self-employment tax she pays.
- Retirement: she opens a solo 401(k), defers the $24,500 employee amount, and adds an employer profit-sharing contribution on top, up to the combined $72,000 cap. Her tax team runs the exact employer figure from her net earnings.
- QBI: her taxable income is above the $276,750 single full-phase-out point, and medicine is a specified service business, so she gets no QBI deduction. Typical for a full-time locums physician.
The point of Dr. Patel isn’t one number. Her real levers are the deductions she tracks, the retirement plan she funds, and staying inside the safe harbor so a strong year doesn’t turn into a penalty.
What about working across multiple states?
Locums work often means income in more than one state in a single year, and that’s where a federal guide runs out. States set their own rules for who files, how income is sourced to the state where you worked, how residency is defined, and whether you get a credit for taxes paid to another state. Those rules vary widely, and one state’s answer tells you nothing about another’s. If your assignments cross state lines, hand this to your tax team early, before the deadline turns into a scramble across four state returns.
Bringing it together
Going 1099 or locums doesn’t have to mean a surprise in April. It’s a different set of rules, and most of them reward planning ahead. Track your legitimate business expenses, fund a solo 401(k), keep your quarterly estimates inside the safe harbor, and get ahead of any multistate filing. Do those four things, and the paycheck that looked too good to be true just becomes your income.
About Doc Wealth
Doc Wealth is a physician founded tax planning firm built exclusively for physicians. We handle proactive, year round tax planning so physicians can focus on patients instead of the tax code. When you work with us, your tax team is an elite team of Tax Attorneys, CPAs, and Enrolled Agents who work with 1099 and locum tenens physicians every day. If you’d like a second look at your contractor income before the next quarterly deadline, you can reach out to your tax team at Doc Wealth, and count on prompt, dependable communication.
This material is intended for educational and informational purposes only and does not constitute tax, legal, accounting, or financial advice. The content is general in nature and may not apply to your specific circumstances. Tax laws and financial regulations are subject to change and interpretation, and the application of these laws can vary based on individual situations. Before making any decisions, you should consult with a qualified tax advisor, legal counsel, or financial professional.
