The first tax year as a 1099 locum physician is the one that sets the pattern. Physicians who enter it with the right structure in place build on a foundation that compounds favorably over time. Physicians who enter it reactively spend the next several years correcting decisions that would have been straightforward to get right from the start.
The obligations are not complicated. But they are different from anything a W-2 career prepared you for — and different in ways that matter financially.
You Are Now the Withholding Agent
As an employed physician, federal income tax, state income tax, Social Security, and Medicare were withheld from each paycheck before you saw a dollar. The system was invisible because it worked automatically.
As a 1099 contractor, none of that happens. Your locum agency or facility pays your gross rate. No withholding. The full tax obligation accumulates with every payment received — and it becomes your responsibility to track, estimate, and pay it on the IRS's schedule, not your own.
The IRS expects quarterly estimated payments: April, June, September, and January. Missing or underpaying those deadlines generates penalties that are entirely avoidable with basic planning. For a physician earning $350,000 in a first locum year, the quarterly payment due each cycle is not a trivial figure.
Self-Employment Tax Is Not Optional — But It Is Reducible
Self-employment tax — the combined 15.3% covering Social Security and Medicare — applies to net self-employment income. As a W-2 employee, your employer absorbed half of this. As a sole-proprietor 1099 contractor, you absorb all of it.
The phrase "reducible" is important here. Operating through an S-Corporation and paying yourself a reasonable salary allows the S-Corp to pay employment taxes only on that salary, with remaining profits distributed without self-employment tax exposure. For a physician earning $350,000 or more in net locum income, this structure routinely saves $15,000 to $25,000 annually in self-employment taxes alone.
The key is establishing the entity before income accumulates in it — not retroactively. The IRS requires S-Corp elections to be made on a specific timeline. A physician who forms the entity in February of their first locum year has a very different outcome than one who gets around to it in November.
The Deductions That Are Now Available to You
The transition to independent practice opens a category of deductions that W-2 employment doesn't provide access to. These are not gray-area strategies — they are business expense deductions that the tax code explicitly extends to self-employed professionals.
Malpractice premiums paid personally are deductible. Continuing medical education — including travel to conferences — is deductible when business-related. Licensing fees, DEA registration, professional association dues, and the cost of medical references and subscriptions are all deductible business expenses for a practicing locum physician.
Health insurance premiums paid by a self-employed physician are deductible against income, not just as an itemized deduction. This alone can represent several thousand dollars annually for a physician sourcing their own coverage.
Retirement contributions through a Solo 401(k) reduce taxable income dollar-for-dollar. A physician who maximizes contributions in their first locum year captures a tax benefit they would never have had access to as a W-2 employee.
What Multi-State Practice Creates
Working assignments across multiple states is common in locum medicine — and it creates filing complexity that employed physicians never encounter.
Each state where you earn income may require a separate non-resident return. State income tax rates vary significantly: some states impose no income tax; others impose rates above 10% on high earners. Reciprocity agreements between states affect whether income earned in one state is taxable in another where you're also a resident.
None of this requires a specialist to manage. It does require a tax advisor who has handled multi-state locum situations before — because the rules are state-specific, and generic advice doesn't reliably account for them.
The First Year Sets the Baseline
The decisions made in a first locum tax year — entity structure, retirement account funding, deduction capture, estimated payment cadence — establish the baseline your financial strategy builds on. Optimizing from a correct baseline is straightforward. Unwinding incorrect structures and recovering missed opportunities is slower and more expensive.
The physicians who start correctly don't do so because they knew all of this intuitively. They do so because they engaged a tax advisor who specializes in 1099 physician situations before the income started, not after the first April surprise.