The locum tenens pay rate is the number that draws most physicians into the conversation. It's higher than their W-2 salary. Sometimes significantly higher. The math looks compelling before the details are examined.
The details are worth examining carefully — not because the economics are unfavorable, but because the gap between gross rate and net take-home is larger and more variable than most physicians expect. Understanding what determines that gap is the difference between entering locum practice financially prepared and discovering the reality at the end of your first tax year.
How Locum Compensation Is Structured
Locum tenens pay is typically quoted as an hourly or daily rate. Depending on the agency and the assignment, housing and travel may be covered separately, or a stipend may be folded into the rate. Some arrangements include a per diem for meals and incidentals. Others do not.
The rate itself is gross income — before taxes, before self-employment tax, before the cost of benefits you are now responsible for sourcing yourself. A physician comparing a locum rate to their previous W-2 salary needs to account for all of those factors to make a meaningful comparison. The W-2 salary came with employer tax contributions, health insurance, retirement matching, and malpractice coverage. The locum rate does not.
This is not an argument against locum compensation — it is typically more favorable than employment on a net basis when properly structured. It is an argument for understanding what the structure needs to look like before the first contract is signed.
The Tax Layer
A locum physician earning $400,000 in gross 1099 income is not taking home $400,000 minus their income tax rate. Self-employment tax applies first — 15.3% on net self-employment income up to the Social Security wage base, and 2.9% above it. For a physician operating as a sole proprietor, that exposure is applied to every dollar of net profit before income taxes are calculated.
Entity structure changes this picture materially. An S-Corporation allows the physician to pay themselves a reasonable salary — subject to employment taxes — and take remaining profits as distributions, which are not subject to self-employment tax. For a physician earning $400,000 in net locum income, the difference between sole proprietor and S-Corp treatment on the self-employment tax line alone can exceed $20,000 annually.
Federal and state income taxes then apply to whatever net income remains after entity-level deductions, retirement contributions, and other business expenses. The effective rate varies significantly by state — a locum physician working assignments primarily in states with no income tax has a meaningfully different take-home than one whose assignments are concentrated in high-rate states.
The Benefits Replacement Cost
W-2 employment includes a benefits package that the salary figure doesn't fully reflect. Health insurance, dental, vision, and employer retirement contributions all have real dollar value — typically $20,000 to $40,000 annually for a physician's family coverage and basic benefit package, depending on the employer and specialty.
When you transition to 1099 practice, those costs become yours. A locum physician who doesn't account for benefits replacement costs in their take-home calculation is comparing gross locum income to net employment compensation — an apples-to-oranges comparison that overstates the difference.
The good news is that a well-structured benefits package for a self-employed physician — built around an HSA-eligible health plan, individually sourced dental and vision coverage, and a Solo 401(k) — can replicate or outperform employer coverage at a lower after-tax cost. The self-employed health insurance deduction alone changes the economics significantly. The math works in your favor when the benefits are built as a system rather than sourced piecemeal.
What Housing and Travel Stipends Actually Mean
Many locum assignments include housing provided by the facility or agency, or a stipend in lieu of direct housing. When structured correctly, housing and travel reimbursements for temporary assignments away from your tax home are not taxable income — they are non-taxable reimbursements under IRS rules governing temporary work locations.
The tax-home rules are specific and matter. A physician whose primary residence is in one location and who works temporary assignments elsewhere can receive housing and travel reimbursements tax-free, provided the assignments meet the IRS definition of temporary and the physician maintains a legitimate tax home. Assignments that extend beyond twelve months in a single location may lose that treatment.
Understanding how housing stipends interact with your tax situation before accepting assignments is worth the few minutes it takes. The difference between taxable and non-taxable treatment on a housing stipend can be several thousand dollars per assignment.
The Correct Comparison
A locum physician earning $350,000 in gross compensation, operating through an S-Corporation with optimized salary and distributions, maximizing Solo 401(k) contributions, deducting health insurance premiums, capturing legitimate business expenses, and receiving non-taxable housing reimbursements on temporary assignments, retains a substantially higher percentage of their gross income than the headline tax rates suggest.
The same physician operating as a sole proprietor, missing retirement contributions, paying full self-employment tax, and not tracking business deductions retains significantly less — from the same gross income.
That gap is entirely a function of structure. The rate is what the market pays you. The structure is what you keep.