Guide to The 1099 Tax Form for Locum Tenens
The information provided in this article is for informational purposes only. Nothing included is meant to be construed as financial advice. If you have questions about any of the information presented, please contact your financial advisor.
As the healthcare system becomes more complex with each passing year, keeping abreast of the changes can be challenging. One area that has become increasingly complicated is the tax implications for locum tenens providers working as independent contractors.
Locum tenens physicians and APPs not employed in the state of California must familiarize themselves with the 1099 tax form used by employers who pay people on a contract-working basis.
We understand that filing taxes across multiple states and calculating deductions and tax benefits for your assignments can feel overwhelming and time-consuming.
So, if you’re considering or currently working as a locum tenens provider, this guide will provide you an overview of what you can expect. Bear in mind that all tax and financial decisions should be discussed with a financial professional.
The independent contractor defined
In essence, an independent contractor is a freelancer or consultant who provides services to another business and has total control over how the work they do for that organization is completed.
According to the IRS, if you are an independent contractor, you’re self-employed. This has two significant implications. The first is that you’re responsible for making estimated tax payments. Secondly, no state, federal, Medicare, or Social Security taxes are deducted from your locum tenens paychecks.
Another difference is that instead of the IRS W2 form that traditional employees receive at the end of the year that contains income information, you’ll receive IRS 1099 forms. You’ll then report this annual income on a 1040 form.
The 1099 Form
The IRS uses various types of Form 1099 to report specific types of income.
There have been some recent changes and updates to tax paperwork, as the IRS reintroduced Form 1099-NEC in the tax year 2020. This form now reflects the earnings from your locum tenens work instead of Form 1099-MISC, which no longer includes non-employee compensation as it did previously.
A self-employed locum tenens provider receives separate 1099 forms from each client they worked for during the tax year, listing the total gross compensation.
If you work with a credible locum tenens agency, they’ll automatically send you a form if you earned over $600 with them in the tax year. They should send out the required tax forms by January 31 of the following year, so you need not concern yourself with locating a form.
It’s important to understand that you don’t “pay taxes” through the 1099 tax form. Instead, you’re issued 1099 forms, and you pay taxes through Form 1040, the master sheet that contains and reports the details from all other tax forms.
Tax obligations as a 1099 worker
As an independent contractor, your tax obligations are to complete and file an annual return and pay any estimated tax quarterly.
You’ll typically pay self-employment tax (SE tax) to cover Social Security and Medicare taxes in addition to income tax.
However, it’s your responsibility to pay the appropriate federal, state, and SE taxes. Therefore, it’s essential to keep personal records of your locum tenens earnings, as you’ll need these figures to calculate taxes.
Another reason for keeping diligent records of your locum tenens contract history and earnings is that mistakes can happen. If there’s a discrepancy, you can use your records for comparison and request an updated form if necessary.
Paying estimated taxes
Anyone expecting to owe more than $1,000 in annual taxes should pay estimated federal taxes each quarter. Depending on where you live or practice, you may also need to pay estimated taxes to each state.
You’ll make four tax payments annually, made every three months. You’ll pay 15.3% of your self-employed income for Medicare and Social Security taxes, plus income tax.
For most people, it’s a wise precaution to set aside around 25–30% of each paycheck to cover self-employed taxes. By planning ahead, you’re not shocked by a sizable tax bill when it’s time to make payments.
Maximizing your deductions
As a locums tenens contractor, there’s a range of deductions you can make, including:
- Laptops and computers
- Office supplies
- Books and publications
- Travel, phone calls, and mail expenses
If you pay for health coverage, you’re also eligible to deduct the cost of your health insurance premiums.
You could also lower your taxes by contributing to a qualified retirement plan, such as a Solo 401(k) or Simplified Employee Pension (SEP) plan. These contributions are tax-deductible, and you can boost your retirement savings while enjoying some tax relief.
It is important to work with a financial specialist who can sort through the details of your annual and quarterly taxes for you. Though it is very helpful to understand the process and your obligations, there is no replacement for professional assistance.