A Locum Tenens physician works as an independent contractor, not as an employee. The two practice types have distinct differences in financial obligations, advantages, and disadvantages. The differences include tax categories and eligibilities for services.
Unemployment compensation. An individual, working as an independent contractor, cannot file for unemployment based on earnings as an independent contractor. It is not permissible to list the locum tenens staffing agency as a previous employer on the claim, nor can any compensation from a staffing agency be reported as wages on that claim. Unemployment compensation is a potential benefit for individuals who worked as an employee but lost their job through no fault of their own and who are available for work as an employee.
Workers’ compensation insurance is government-mandated employee insurance provided to cover health costs which are the result of accidents on the job harming employees. Independent physicians must buy their own coverage. It may, however, duplicate health insurance coverage.
Benefits (health, dental, disability, life insurance) cannot be provided tax-free to non-employees. They may be obtained directly by the physician or be available through the spouse’s employment.
A staffing agency’s 401(k) plan cannot be used for independent physicians. However, more lucrative retirement plans are available to independent contractors. Many of the plans have both income tax advantages and disadvantages, affecting the amount allowable to be deposited in a retirement account.
- A locum tenens physician can claim more work-related expenses than an employee. All independent contractor 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.
- Expenses (those not paid by the staffing agency or client) are listed on Schedule C forms. These include all costs associated with the temporary work assignment. Travel, meals, housing, work tools and supplies, and continuing education are included. No deductions, however, are allowed for expenses which are attributed to personal, living, or family expenses.
- On assignments, which require overnight lodging (other than home) and meal deductions, may be claimed as reasonable, actual out-of-pocket meal costs.
- All transportation costs (these include from home to the assignment area and daily trips from temporary housing to the work site) are deductible if they are not paid or reimbursed by the client or staffing agency.
- As an independent contractor, the physician can claim a deduction from adjusted gross income (without regard to itemized deductions) for 100 percent of health insurance premiums paid.
- The locum tenens physician can set aside a separate room or area in his/her permanent residence to conduct administrative functions of the locum tenens’ business activities and deductions (e.g., depreciation, utilities, insurance, etc.). These expenses associated with this home office may be claimed.
- An income tax deduction may be claimed for half of the 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.
- Federal tax law limits the deduction for actual meal costs to 50 percent of that claimed.
- A physician, in an independent contractor role, will usually be liable for payment of state income taxes in the state of each work assignment, consistent with the extent that the state has a personal income tax. However, a state tax credit for the nonresident 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.
For further reading, check out our article on more locum tenens benefits and drawbacks. If you’re looking for employment, browse locum tenens jobs here.