Locum Tenens Taxes: What Providers Owe as 1099 Contractors

You took a locum assignment, and the first check arrived with nothing taken out.

Locum tenens taxes are the filing, payment and record-keeping questions that come with temporary assignments away from a regular practice. This guide is for physicians, nurse practitioners and physician assistants who are paid as 1099 contractors rather than as employees. Pay is reported on a Form 1099, and no payroll department sends tax to the IRS or your state on your behalf.

So the planning is yours: how the income is taxed, what to pay each quarter, which states want a return, and which costs you can deduct.

Key takeaways

The short version for a 1099 locum:

• Self-employment tax and estimates: 1099 pay generally has no withholding, so you pay estimated tax during the year.
• Deductions follow the facts: Reimbursed costs should not be deducted again, and travel deductions depend on your tax home and the length of the assignment.
• Each work state can want a return: Working in a state can create a nonresident return even if your home state has no income tax.

How 1099 locum income is taxed

Income from 1099 locum work is independent contractor income. It generally goes on Schedule C (Form 1040), and no payroll withholding comes out of it, so you set aside tax yourself.

The 1099 form alone does not prove you were classified correctly. Classification depends on facts and circumstances, and if a facility controls your work the way it controls employees, your tax file may really belong on a W-2. Also, you report locum income even if a payer never sends a form, so keep your own record of what you were paid.

You usually don’t pick W-2 or 1099 yourself. The facility or agency paying you decides, and the IRS and some state laws shape that choice. Physician locum assignments are typically 1099, while nurse practitioners and physician assistants, as mid-level providers, can be offered either one. Read the contract before you accept so you know which tax situation you are signing up for. The IRS explains the test in its independent contractor guidance.

Self-employment tax and the taxes you pay

A 1099 locum pays three layers of tax: federal income tax, self-employment tax and state tax. Self-employment tax is the Social Security and Medicare tax an employer would normally split with you. The IRS covers it in its self-employment tax guidance.

On a W-2, your employer pays 6.2% for Social Security and 1.45% for Medicare. As a contractor you owe both halves:

• Social Security: 12.4% on earnings up to $184,500 in 2026.
• Medicare: 2.9% with no earnings cap.
• How it’s applied: The rate is 15.3% on 92.35% of your net earnings, and it only applies once net earnings reach $400.

Higher earners also pay an extra 0.9% Medicare tax. ERA’s 2025 guide lists the thresholds as $200,000 for single filers, $250,000 for married filing jointly and $125,000 for married filing separately.

Two things soften the bill. Business expenses reduce your net earnings, and 1099 income may qualify for the qualified business income deduction, a potential 20% deduction that has income limits. W-2 income does not qualify for it.

State tax is the third layer, and it depends on where you work and live. Some states use a single rate and others use graduated rates, so check each state’s rules before the assignment starts.

Quarterly estimated taxes and how much to set aside

1099 locums make four estimated payments a year, on the 15th of January, April, June and September. You can usually pay online through the IRS payments site. The IRS estimated taxes page and the IRS payments page show how.

Form 1040-ES is the worksheet for calculating each payment. It covers income tax and self-employment tax together. Some states and localities want estimates too, depending on your situation.

Skipping estimates can leave you with a large balance and underpayment penalties when you file.

For a set-aside, ERA’s 2025 guide suggests 35% to 40% of income for state and federal taxes, even if you take deductions. That is one agency’s rule of thumb, not an IRS figure, so treat it as a starting point and adjust it once you know your expenses and states.

If you also hold a hospital job, don’t assume its W-2 withholding covers a busy locum year in another state. Withholding and estimates need one combined plan, because the payroll system at your main job knows nothing about the locum income.

Tax home and temporary assignments

Travel deductions generally require a tax home. Under IRS Publication 463, your tax home is your regular place of business or post of duty, no matter where your family lives. If you have more than one work location, it is generally the main one, judged by time, business activity and income.

For locum work, ask yourself:

• Do you still have a regular clinical base, office or hospital post that works as your main place of business?
• Is your residence in that same area, or is it a personal home in another city?
• Have you given up a regular post and started moving from assignment to assignment with no main location?

If the last one describes you, the IRS may treat you as an itinerant. Your tax home may then travel with each assignment, and away-from-home deductions may not apply. IRS Publication 463 has the details.

The second test is duration. A temporary assignment is expected to last, and does last, one year or less. If you realistically expect it to last longer than a year, it is indefinite from the start, even if it ends sooner, and travel expenses at the site are generally not deductible. Physician locum contracts usually run nine months or fewer, so most fit.

Write down the expected length when you sign and again at every extension. A 10-week locum that ends in 10 weeks is a different case from a post that keeps getting extended with no end date.

Deductions: travel, lodging, meals and reimbursements

Only costs that are both ordinary and necessary for your profession can be deducted, and anything the agency or facility reimbursed cannot be deducted a second time. What is left is the part you paid yourself, and it still has to pass the tax home and temporary assignment tests.

The rules that come up most:

• Meals while traveling: generally limited to a 50% deduction and need substantiation. GSA per diem rates can cover meals and incidentals, but not lodging.
• Commuting: driving to a regular local hospital is generally personal.
• Health insurance premiums: deductible only if you have no access to an employer-sponsored plan.
• Duplicate housing: extra lodging while away is the issue the travel rules address, not the mortgage on a home you’d pay for anyway.

Read the contract, because “housing provided” can mean a facility apartment, a stipend or a capped reimbursement with receipts. Accountable-plan reimbursements are not a second Schedule C deduction, while a taxable stipend is income, and any deduction against it still has to meet the travel rules.

Dr. Chen, a hypothetical physician with her regular post and tax home in Florida, takes a 12-week locum in another state. She spends $8,000 on lodging, $2,400 on transportation and $1,800 on meals, and the client reimburses $6,000 of the lodging.

• Before: $12,200 of gross travel spend.
• After: $2,000 of lodging left to analyze, plus transportation and meals that still need substantiation.

The $12,200 is not a deductible total. If she had no Florida post and moved from locum to locum, the tax home conclusion could change and the same invoices might fail the away-from-home test.

Pitfall: Deducting a hotel or flight that the agency already paid for counts the same cost twice, so check every receipt against the reimbursement policy first.

State taxes when you work across state lines

You generally report 1099 income first to the assignment state, then to your resident state, which usually gives you a credit for the tax you paid the work state. A Florida tax home does not erase another state’s tax on work done there.

A physician who lives in Chicago, IL, and works a 6-month 1099 assignment in Prescott, AZ, in 2026 earns $200,000 net as a sole proprietor.

• Live in IL, work in AZ: Arizona taxes it at 2.5%, which is $5,000. Illinois taxes it at 4.95%, which is $9,900, minus the $5,000 credit, leaving $4,900. The total is $9,900.
• Live in AZ, work in IL: Illinois collects the full $9,900. Arizona’s $5,000 is reduced by that credit to $0, since it can’t go below zero. The total is still $9,900.

Either way, you pay the higher of the two rates. Real returns are more nuanced, but the principle holds in most cases.

State rates run from 0% to 10%+ depending on the state and your income, and California tops out at 13.3%. Current rates are on the Tax Foundation’s state income tax page.

Watch for other layers:

• Local income taxes: more significant in Indiana, Kentucky, Maryland, Ohio and Pennsylvania. Portland, OR, Kansas City and St Louis in Missouri, and Yonkers and New York City are outliers.
• Washington: no individual income tax, but a statewide 1.5% business and occupation tax on gross 1099 assignment income, before expenses.
• Hawaii: a general excise tax that sits on top of its regular income tax.
• Telemedicine: some states, California for example, may tax income based on where the patients are.

State tax workarounds that do not work

Three shortcuts sound good and don’t work:

• Forming an LLC in a no-tax state: You owe tax in whatever states and localities you actually do business in, whether you’re a sole proprietor, an LLC or a C corporation. Where you formed the business doesn’t change that.
• Claiming residency with a P.O. box or a relative’s address: These alone don’t establish residency. States apply formal tests, such as where you own or rent a home, are registered to vote, register your car and spend consistent time. A physician living in Connecticut who claims Florida residency risks a residency audit based on records like an active Connecticut license, and a loss means back taxes and penalties.
• Skipping the return in the assignment state: If a state or locality learns you worked there and you never reported the income, it can assess both back tax and penalty. A South Dakota resident working in Portland, OR, still owes Oregon and Portland tax.

Local taxes are the easiest to miss by accident, so check the city and county of every assignment before you start. The honest fix for a complicated multi-state year is a correct return in each state, not a structure designed to avoid one.

Choosing a business structure

A 1099 contractor is by default a sole proprietor. You don’t need an LLC to count as a business or to deduct expenses, and no extra tax formalities are required.

The three common options:

• Sole proprietorship: the simplest and the most common for locums, with no corporate tax on top of income tax. The owner carries all the business’s liabilities personally.
• LLC: limits personal liability, and you can choose how it is taxed. It comes with more paperwork and can bring higher fees.
• S corporation: not ideal for 1099 travel assignments. It needs calculations to see if it fits and brings more formalities.

An entity changes your liability and the tax mechanics, but not whether the income is taxed. Some states add their own twist. Tennessee has no individual income tax, yet it applies a 6.5% excise tax to S corporation income after a $50k deduction, while a sole proprietor owes 0% excise tax.

If liability worries you, an LLC is the usual conversation to have. Before you add an S corporation, work through the numbers with an accountant who understands multi-state travel work.

Locums on top of a W-2 job

If you keep an employed position and add weekend or between-job locums, the locum income is still self-employment income. You owe self-employment tax on your locum net earnings even with a full-time job, and you file Schedule C with your 1040 to write off locum expenses.

The two jobs share a payment plan, not their expenses:

• Mileage to your regular hospital is generally still commuting, not a locum deduction.
• A conference that supports both roles may need an allocation between them.
• Costs of the employed job are not automatically locum deductions.

Withholding at the employed job may not cover the extra tax from the side work. Build one estimate that counts both income streams, and put only the locum-related receipts on Schedule C instead of dropping every professional receipt onto it.

Records to keep for a locum tax file

A locum tax file that supports your return usually holds these records:

• Contracts and amendments, including the expected duration at signing and at every extension
• A shift log by state, which supports multi-state filings
• Forms W-2 and 1099, plus a payer summary if a form is missing
• Reimbursement policies and payment confirmations
• Receipts for lodging, transportation and meals
• Notes separating personal days from assignment days
• Licenses, credentialing and malpractice invoices tied to the locum work

The IRS will not accept bank statements alone as proof of expenses, so keep the receipts themselves. A cloud folder of labeled digital receipts works well, and some providers add a short note on the context of each expense.

Use separate checking and credit cards for business only. Those records also stop duplicate deductions when a recruiter or hospital already paid the hotel.

How to get started as a new 1099 locum

Follow this order before and during your first assignment:

1. Confirm your 1099 status. Ask the payer how you’ll be paid and read the contract, since the facility or agency decides.
2. Open a business account. Use a separate checking account and credit card for assignment income and costs.
3. Log your tax home and contract dates. Record the expected duration at the start and note any extension.
4. Estimate and set aside tax before the first payment. Use Form 1040-ES to work out what you’ll owe, then move a share of every payment into savings.
5. Track shifts by state. A running log makes each state return easier later.
6. Schedule the quarterly payments. Put January 15, April 15, June 15 and September 15 in your calendar.

Three forms run the year. Your clients send a 1099-NEC that shows your total locum income, 1040-ES drives your estimates, and Schedule C reports income and deductions when you file. Getting tax season prep in place before the assignment starts is far easier than rebuilding records afterward.

Locum tax questions

Are 1099 taxes higher than W-2 taxes?

Usually yes, because a contractor owes both halves of Social Security and Medicare. Deductions for business expenses partly offset the extra cost. Locumstory suggests looking for 1099 pay at least 20% above similar W-2 pay.

Do I report 1099 income if no form arrives?

Yes. Locum income is reportable even if a payer doesn’t issue a form. Ask the payer for a summary, and keep your own records of payments received.

Should I hire a tax professional for locum income?

A professional helps most when you have several contracts or work in more than one state. ERA suggests software may be enough for one to three contracts. Locumstory estimates year-round 1099 accounting support at roughly $3,000 to $6,000 a year, which can be a business expense.

Is a lower-tax state a good reason to choose an assignment?

Not by itself. Working in a no-tax state doesn’t lower your bill if you live in a higher-tax state, because your home state still taxes you as a resident. Pay rates, workload and family ties matter as well.

Plan your locum taxes before the first check

A 1099 locum has to plan for self-employment tax, quarterly payments and state returns from the first assignment, because nothing is withheld along the way. Keeping a clean file of contracts, receipts and shift logs makes each of those steps easier.

Your next step is to set up a business account and a first estimate before the first check arrives, then confirm the details with a tax professional who works with multi-state providers.

This article is general information, not financial or tax advice, so check with a qualified professional about your own situation.

We are Medical Associates Consulting, and we are here to help you find your dream locum assignment. If you need help or have questions about your taxes, please call our sister company Advanced Healthcare Business Management at 561-672-0337 or email at info@advhealthcaremanagement.com