Locum tenens physicians/employees can often claim more work-related expenses than other professionals. Your tax professional can provide you with additional deduction opportunities.
1. As an individual independent contractor, a locum tenens physician/employee has more opportunity to claim work-related expenses than the typical employee. All independent contractor related income and expenses must be reported on IRS Form 1040, Schedule C. Unlike employees, these expenses are not subject to the limitations of Schedule A, itemized deductions.
2. Expenses (not paid by the staffing agency or client,) are claimed on Schedule C and include all costs associated with the temporary work assignment such as travel, meals, housing, work tools and supplies, home office expenses, and continuing education. However, deductions may not be claimed for expenses attributable to personal, living, or family expenses.
3. On assignments requiring overnight lodging (away from home,) reasonable. out-of-pocket meal deductions may be claimed. The IRS standard is $46 meal and incidental per diem, or the CONUS meal and incidental rates that vary from $46 to $71 per day depending on the assignment location. The CONUS rates are readily available at sss.gsa.gov.The housing portion of the per diem may not be claimed by an independent physician/contractor. Only actual housing costs incurred that are not reimbursed by the agency or client may be deducted.
4. On an “away from home” assignment, all transportation costs (to the assignment area and daily trips from temporary housing to the work site,) should be deductible to the extent not paid or reimbursed by the client or staffing agency. If the physician drives their own vehicle, 56 cents per mile for 2014 plus tolls and parking may be claimed; or one may claim actual expenses including a pro-rata portion of depreciation, gas, maintenance, and insurance.
5. As an independent contractor, the physician may have a more lucrative retirement plan(s) than the typical employee 401k Plan. Creating a SEP, Keogh Plan, or other self-employed retirement plan before December 31 will allow the physician to contribute to the plan(s) before April 15 of the following year up to the lesser of $52,000 or 25% (100% for some plans) of net self-employed income for the 2014 tax year. The physician might also qualify for a traditional or Roth IRA.
6. As an independent contractor, the physician may claim a deduction from adjusted gross income (without regard to itemized deductions) for 100% of health insurance premiums paid.
7. To the extent the physician sets aside a separate room or area in their permanent residence to conduct administrative functions of the locum tenens business, deductions (e.g., depreciation, utilities, insurance, etc.) associated with this home office may be claimed.
8. Some business liability and tax advantages may be available in forming a professional corporation for the locum tenens business including setting up a defined benefit retirement plan with even more lucrative contribution deductions.
1. A locum tenens physician (not incorporated) will be subject to Federal self-employment tax reported on IRS Form 1040 Schedule SE (both the employee and employer portion of Social Security and Medicare tax.) An income tax deduction may be claimed for half of this tax.
2. Federal tax law limits the deduction for actual meal costs or the meal per diem amounts to 50% of that claimed.
3. A locum tenens physician will generally be subject to state income taxes in the state of each work assignment to the extent the state has a personal income tax. However, a state tax credit for the non-resident state tax liability is generally available to reduce the home state tax (state of residence generally taxes all income). This credit should fully or partially eliminate any double state taxation. The states of AK, FL, NV, SD, TN, TX, WA, and WY have no tax on this type of personal service income.
4. California requires all staffing agencies to withhold 7% of gross compensation paid to non-resident physicians assignments in California. This withholding should substantially or fully offset the tax liability on the physician’s non-resident California income tax return.
5. In limited cases, a locum physician may have a city or county income tax reporting obligation for the tax home and/or the assignment jurisdiction, a state and/or local sales/gross tax on the gross income earned in the assignment jurisdiction, or a business or other license (beyond the medical license) requirement.
6. Filing Schedule C, quarterly estimated tax payments on Form 1040-ES, and potentially one or more state income tax returns with quarterly estimated payments increases the tax compliance burden.
Available at irs.ustreas.gov
#334 Tax Guide for Small Businesses (For individuals that use Schedule C)
#463 Travel, Entertainment, Gift and Car Expenses
#505 Tax Withholding and Estimated Tax
#560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
#583 Starting a Business and Keeping Records
#587 Business Use of Your Home
#1542 Per Diem Rates (For Travel Within the Continental United States)
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