Six Financial Tips for Locum Tenens Physicians

Going the locum tenens route is an exciting option for physicians, regardless of their specialty. It comes with several benefits, including greater schedule control, travel opportunities, supplemental income, and firsthand experience in other healthcare settings.

One of the biggest draws is higher pay, despite it being hourly. However, it’s important to remember that as a locum tenens provider – one who is not working within their own practice – you’re not an employee of the staffing agency or the healthcare facilities you work in. 

This adds a layer of new financial responsibilities. Here are six of our favorite tips to keep in mind.

Money tips every locum tenens doctor should know

Keep thorough records

Congratulations! You’re now your own accountant.

Even if you’re part-time, you must be extremely careful about keeping records during all of your contracts in the event that the IRS decides to audit your records.

Keep track of your income as it comes in so that you can easily review the 1099 form you’ll receive in January. It’s critical that your records match the numbers the IRS has, as they’ll have copies of every 1099 you receive. 

If you’re just starting as locum tenens, set aside time to regularly update your records and manage your income. If you’ve been in this position for a while, it’s not too late to start. Being proactive and updating throughout the year will save you time – and headaches – in the long run.

But it’s not just financial records you’ll need to keep. Keep track of any business expenses you incur while on contract as well as expenses including healthcare premiums, licensing, membership fees, and professional services. 

We’ll talk about why this is important in a second.

Set aside money for taxes and pay quarterly

As a locum tenens provider, you’ll be paid in a gross sum rather than net. Simply put, each paycheck will be in full, for all hours worked. There will have been no deductions taken out (state or federal).

Because of this, you’re now responsible for paying all of your taxes on any income earned during a contract. It’s best to put aside a portion of each paycheck you receive, but if you’d rather not, you can look at the 1040-ES form for guidance on calculating what you owe on April 15th.

If you want to avoid a large sum, paying your taxes quarterly is a great way to do so. In fact, IRS and state tax agencies alike encourage contractors like you to make estimated payments on the 15th of April, June, September, and January. If you’re new to quarterly taxes, you can learn about the process, including late fees and self-employment tax, at the IRS’ Self-Employed Individuals Tax Center.

But as you do your taxes, don’t forget about deductions! This is where those records you’ve meticulously kept will come in.

The IRS allows contractors to deduct the costs they incur on assignment but don’t get reimbursed for by their employer. Professional costs associated with licensing and healthcare can be deducted, as well as food and travel related expenses. Just make sure you know the ins and outs of how the IRS looks at travel expenses and make sure that you’re deducting what is allowed. 

To make sure that you’re taking full advantage of all deductions available to you, consider working with a tax professional.

Reassess your budget and pad your emergency fund

This type of position, which doesn’t allow for guaranteed employment, and the financial responsibility it entails will likely give you the opportunity to reassess where your spending goes. Score!

When you sit down to examine your financial situation, go back to the basics. Check a cost of living calculator to get a feel for what your financial situation might look like in your new city and find creative ways to lower your spending.

You might even go so far as to create a new budget. In doing so, include the essentials (housing, utilities, etc.) as well as the fun things, such as memberships and dining out. What can you do without? 

In doing so, you’ll want to check on that emergency fund and make sure it’s in good shape. Doing so will help you keep your head above water if you experience a break in income or an unexpected life event that forces you to take some time off.

Consider setting goals, both short- and long-term, to motivate you even further.

Don’t neglect your student loans 

Bad news: If you work locum tenens, you’re no longer eligible for the Public Service Loan Forgiveness (PSLF) program

You’ll likely need to find a new routine to pay down your medical school debt. While you could go for Income-Driven Repayment to earn forgiveness after 25 years, remember that the full forgiven amount is taxable.

So, what do you do? Find new ways to make your payment.

If locum tenens is a side hustle for you, use the extra income to contribute to payments. You can even use your reimbursements to help (which is another great reason to keep records). When you combine this with your new, streamlined budget, you’ll make progress faster.

On the other hand, if locum tenens is your only source of income, remember that housing, travel, and malpractice premiums are typically covered. Take advantage of that! You’ll likely be saving thousands of dollars per month, so why not put some of it away and use the rest to make large lump sum debt payments?

Set up retirement accounts

For all of the benefits of locum tenens work, the lack of retirement plans is a serious drawback. You have to take it into your own hands now, but luckily, you’ve got several options: 

  • Simplified Employee Pension (SEP) IRA, which can be opened in addition to any other IRAs you might have open, such as a Traditional or Roth. This type of account does allow for a significantly higher annual contribution than its counterparts at $61,000.
  • Solo 401(k) plans are called “solo” because typical 401(k) plans see an employer contribution in addition to an employee’s. But, as locum tenens, you’re both the employer and the employee. Like a SEP IRA, you can contribute up to $61,000 annually.
  • A Defined Benefit Plan is the equivalent of funding your pension. This type of plan is best for self-employed individuals with high incomes (such as a locum tenens doctor). There is a $245,000 annual contribution limit, which is tax-deductible. This account functions as a pension at retirement, paying out monthly annuities as income.

Consider setting up an LLC 

If you plan to live the locum tenens life for a substantial amount of time, and most of your income is 1099, consider working with a financial expert to set up an LLC

Filing your taxes as an S Corp can give you advantages that filing as a sole proprietor won’t. With this setup you’ll be paid both a salary and dividends, and your financial planner can work with you to optimize how these are paid out. 

The locum tenens lifestyle allows for more flexibility than most physician opportunities, but with that freedom comes responsibility. Remember to be proactive when it comes to your finances and, if you need to, reach out to a financial advisor or accountant to see the greatest return on your investment.

This material is for informational purposes only and is not intended to provide financial, legal, tax, nor any other professional recommendations or advice.

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