As a locum tenens physician, filing taxes can potentially be confusing and stressful. Locum tenens workers are classified as independent contractors, not employees. So, what does this mean for them once tax season rolls around? First of all, it means that locum tenens physicians are entitled to deduct expenses associated with their temporary assignments. However, to do so, they must adhere to certain tax rules and requirements. What are these requirements? Well, we’re here to offer some locum tenens tax advice to help you keep your finances on track!
Locum Tenens Tax Advice
What Does it Mean to Be an Independent Contractor?
As a locum tenens physician, you are a self-employed individual. As a result, different tax rules will apply to you as compared to a permanent physician. Here are some important things to remember:
- Self-employment tax. As an independent contractor, you are responsible for paying all of your self-employment taxes, mainly Social Security and Medicare taxes. Typically, the self-employment tax rate is around 15 percent.
- Installment payments. Since taxes are not withheld from your paychecks, you will typically pay your estimated tax directly to the IRS in installments.
- State taxes. Locum tenens may also be responsible for paying any taxes applicable to the state(s) in which they worked during the tax period.
To help offset these taxes, independent contractors are eligible to claim several work-related expenses as deductions on their taxes. We’ll outline these expenses below.
Filing as an Independent Contractor
Like we said, locum tenens physicians are independent contractors and can deduct costs associated with their temporary assignments. However, in order to deduct these expenses, they must be considered a “qualified traveler.” LocumStory.com details three requirements locum tenens must meet in order to be considered a qualified traveler:
- You must maintain a permanent tax home where you generally return to after each assignment and where you incur duplicate housing costs.
- Your temporary assignment must not be within commuting distance of your tax home. It must require overnight sleep and lodging.
- Your temporary assignment(s), including extensions, must not last longer than one year within the same geographical area without a substantial break in service.
If a locum tenens meets these requirements, they are then eligible to deduct unreimbursed travel-related expenses against their income. Typical travel expenses include:
- Temporary lodging
- Meals and incidentals
- Business-related cell phone usage
- Bank and credit card fees associated with the temporary assignment
However, keep in mind that if you plan on deducting these types of taxes, you must keep adequate, accurate documentation for all deductions. So, you must be able to account for the time, place, cost, and purpose of each deduction. Also, you may not claim deductions for any personal or family expenses.
Tips for Staying Organized
In addition, as a locum tenens physician and an independent contractor, it is necessary that you stay organized when it comes to your taxes. Here are a few tips for keeping all of your records organized and minimizing stress:
- Keep good expense records. For work-related expenses that you may be able to deduct, it’s essential to keep detailed records. Be sure to keep your receipts and maintain good records of all purchases.
- Track your income. Like employed doctors who receive W-2 forms to record their earned income, locum tenens physicians receive 1099 forms from each agency that they’ve had a contract with throughout the year. The National Association of Locum Tenens Organizations notes that it’s important to “keep track of your income as it comes in and review 1099 forms carefully when they arrive in January to make sure that the numbers match your records.”
- Plan ahead. Come tax season in April, you don’t want to be scrambling around trying to come up with money to pay your taxes. Each time you receive a paycheck, set aside a portion of the money that will go towards paying estimated taxes.
Finally, keep in mind that this is just a brief outline of some locum tenens tax advice, so we recommend consulting with a financial or tax advisor to thoroughly understand the locum tenens tax situation.
Do you have any locum tenens tax advice? Share with us in the comments below!