Locum tenens 1099 vs W-2: taxes, LLCs, insurance and retirement

Are locum tenens physicians 1099 or W-2?

Usually 1099. Locum physicians choose their assignments, often work with several agencies at once, set their own availability and move between facilities, which fits independent contractor status. The agency contracts with the facility, pays the physician a daily or hourly rate with nothing withheld, and issues a Form 1099-NEC after the year ends. The facility directs the clinical work only in the sense any medical staff does: through bylaws, privileges and protocols.

W-2 locum work does exist:

• Some agencies place nurse practitioners, physician assistants and CRNAs as W-2 employees, depending on the agency, state and setting.
• Some health systems run internal locum or flex pools and employ those clinicians directly.
• A few agencies offer physicians a choice of W-2, usually with a lower gross rate to cover the employer's payroll costs.

Classification depends on the actual working relationship and the IRS and state tests, not the label on the contract. For how locum assignments come together in the first place, see what locum tenens is and how it works; for how the facility bills payers for a locum's services, see locum tenens billing and the Q6 modifier.

How are locum tenens taxes different on a 1099?

Self-employment (SE) tax. A W-2 employee pays 7.65% in FICA and the employer pays a matching 7.65%. A 1099 contractor pays both halves as self-employment tax:

The Social Security wage base is set each year; for 2026 it is $184,500. Above it, only the 2.9% Medicare part continues, which is why SE tax matters less, proportionally, at physician income levels. An additional 0.9% Medicare tax applies to combined wages and self-employment income above $200,000 (single) or $250,000 (married filing jointly). Half of the SE tax is deductible when you calculate income tax.

Quarterly estimated taxes. With nothing withheld, locums pay income and SE tax through estimated payments, generally due in April, June, September and January. Missing them triggers underpayment penalties. Physicians who also hold a W-2 job sometimes raise their W-2 withholding to cover locum income instead.

Deductible business expenses. Ordinary and necessary costs of the locum business can reduce taxable profit: state licenses and DEA registrations, board certification and CME, professional dues, malpractice premiums if you pay them, unreimbursed travel to assignments, a phone and computer used for the work, accounting and legal fees, and disability or business insurance where deductible. Agency-paid travel and housing are not your expense, so they aren't deductible by you.

The QBI deduction (Section 199A). Many self-employed people can deduct up to 20% of qualified business income. Physicians, however, are in a specified service trade or business, so the deduction phases out once taxable income passes an annual threshold, and many full-time locums earn above the phase-out range. The thresholds are indexed and the rules have been amended by Congress, so check the current year with a CPA.

This is general information, not tax advice. Your situation (state, filing status, other income, entity) changes the answer. Work with a CPA who handles physician or self-employed clients.

Locum vs W-2 calculator: a worked 1099 to W-2 comparison

To compare a 1099 locum rate with a W-2 salary, put both on the same footing: what each leaves you with after payroll or self-employment tax, after adding the employer benefits a W-2 job includes, and after subtracting what a contractor pays for themselves. The 1099 vs W-2 calculator uses this method:

Illustrative. Every salary, rate and cost below is an assumption chosen to show the method, not market data for any specialty. Income tax, state tax, the deductible half of SE tax, the QBI deduction and the 0.9% additional Medicare tax are not modeled (the additional Medicare tax applies to both offers at this income). Malpractice is assumed to be covered on both sides.

Same clinical schedule of 180 days a year. A W-2 employed offer at a $300,000 salary with employer health coverage worth $700 a month, a 5% retirement contribution and $5,000 of CME and other benefits, against a 1099 locum rate of $2,000 a day with $8,000 of business expenses and $900 a month for self-paid health insurance.

A $60,000 higher gross still leaves the locum about $3,716 behind. Solving for the break-even, the locum needs about $363,818 a year, or roughly $2,021 a day, just to match the W-2 package, before counting what the employer-paid retirement contribution would have grown to or the value of paid time off. The gap narrows if the locum's QBI deduction or a retirement plan contribution lowers income tax, and widens if expenses or insurance cost more.

Run your own numbers in the 1099 to W-2 converter. The mirror image, what a W-2 clinician costs an employer, is covered in the labor burden rate guide and the employee cost calculator.

Do locum physicians need an LLC? Choosing a business entity

You don't need an entity to work locums. Many locums work as sole proprietors and give the agency a Form W-9 with their Social Security number. Others contract through an entity for tax planning or administrative separation. The main options:

Two misunderstandings are common. First, an LLC does not protect you from malpractice. It can shield personal assets from the business's contract debts, but a clinician remains personally liable for their own professional acts. That is what malpractice insurance is for. Second, the S-corp saving is on SE tax above a reasonable salary, and for physicians already above the Social Security wage base, the saving is mostly the 2.9% Medicare portion (plus the 0.9% additional tax where it applies). Set that against payroll, filing and state costs before electing.

Locum tenens vs independent practice is a different decision again. A locum contracts their time to agencies and facilities and carries none of a practice's overhead: no patient panel, staff, lease, EHR or payer billing. An independent practice owns all of those. An entity for locum work is a contracting and tax wrapper, not a practice. Choose and form any entity with a CPA and an attorney licensed in your state.

Locum tenens insurance: malpractice, health, disability and umbrella

Use this as a checklist before your first 1099 assignment:

Malpractice (professional liability)

Usually provided by the agency for each assignment. Confirm the limits and whether the policy is occurrence or claims-made. If it's claims-made, get written confirmation that tail coverage is included when the assignment ends. Working with several agencies means several policies; keep certificates of insurance for each.

Health insurance

The usual options for locum physicians are an ACA marketplace plan, coverage through a spouse's employer plan, a plan offered through a professional association where one is available, or COBRA for a period after leaving an employed job. A high-deductible plan can pair with a health savings account. Self-employed people can often deduct health premiums through the self-employed health insurance deduction, but not for months when they were eligible for a subsidized employer plan, including a spouse's.

Disability insurance

Locums have no employer group disability coverage, so an individual policy with an own-occupation definition of disability (one that pays if you can't work in your own specialty) matters more than it does for employed physicians. Insurers base benefits on documented income, so keep clean records of 1099 earnings.

Umbrella liability

A personal umbrella policy adds liability limits above your auto and home coverage. It generally excludes professional liability, so it complements malpractice coverage rather than replacing it.

General liability

Some facilities or agencies ask contractors, or their entities, to carry general business liability. Check each contract's insurance clause.

Retirement plans for locum physicians: Solo 401(k) vs SEP-IRA

With no employer plan, locums fund retirement themselves. The two common vehicles for self-employed income:

The IRS sets contribution limits each year, and for self-employed people the employer-side limit is calculated from net earnings after the deductible half of SE tax. Ask a CPA or financial planner to calculate your maximum. Locums with a W-2 job alongside their 1099 work can often still use a Solo 401(k) for the locum income.

Financial glossary for locum physicians

1099-NEC

The IRS form an agency issues to report nonemployee compensation paid to a contractor during the year.

W-9

The form a contractor gives the agency with their name, tax classification and taxpayer ID (SSN or EIN).

Estimated taxes

Quarterly payments of income and self-employment tax made by people whose income has no withholding.

Self-employment (SE) tax

Social Security and Medicare tax for self-employed people: 15.3% of net earnings up to the wage base, 2.9% above it.

QBI deduction

The Section 199A deduction of up to 20% of qualified business income, phased out for physicians and other specified service businesses above income thresholds.

Occurrence policy

Malpractice coverage that applies to incidents during the policy period, whenever the claim is filed.

Claims-made policy and tail coverage

A claims-made policy covers claims filed while it is in force; tail coverage extends it to claims filed after it ends for incidents during the policy period.

Per diem

A daily rate of pay, or a daily allowance for travel costs, depending on context. See what per diem means in healthcare.

Credentialing

Verification of a clinician's education, training, licenses, certifications and history, done by the agency, the facility (with privileging) and each payer.

Before you negotiate a daily rate, know what the market is paying. The ClinicalRate Rate Explorer tracks live pay and bill rates by role, state and metro, including physician and APP roles.

Frequently asked questions