It's that time of year again: Tax season.
And while filing taxes is a challenging undertaking for most people, it can be especially confusing for locum tenens providers.
You see, 9 out of 10 workers in the U.S. are W-2 employees, which means deductions for Social Security, federal and state income taxes, FICA, and Medicare are all taken automatically from their paycheck.
For independent contractors, on the other hand, all deductions have to be accounted for by the individual filing his or her taxes — a significant hurdle for providers who are medical professionals, not financial experts.
To break down this topic and make sure you're filing your taxes correctly, we're sharing 4 tax tips for locum tenens physicians and advanced practice providers.
Tip #1: Work with a Professional
We can't emphasize this first tip enough. Tax rules and regulations are complicated, so it's essential to work with a tax expert who can ensure you're covering all your bases, so you don't run into any legal issues down the road.
The best way to find a credible Certified Public Accountant is to ask your colleagues for recommendations. Keep in mind: This person should have experience working with locum tenens providers and understand multi-state taxation if you're working in different states. Also, he or she should be available not only to file your taxes but also to advise you and answer any financial questions that may come up over the year.
Tip #2: Accurately Track Your Income
Employers are required to mail out 1099-MISC forms to all independent contractors by January 31st, so if you're a locums provider, you should already have your tax forms in hand. If, for any reason, you don't receive a 1099 form from your employer, you can reach out to the company providing the 1099. It is important to have accurate records of your earnings over the course of the year, so the correct taxes owed can be calculated.
Another important thing to keep in mind: If you owe $1,000 or more in taxes at the end of the year, the IRS may require quarterly payments. This is especially true if your locums work is your exclusive source of income. Work with your accountant to make sure you're prepared to pay when the time comes. He or she can help determine what percentage of your paycheck to reserve for taxes and provide quarterly tax payment forms and schedules.
Tip #3: Keep Records of Your Expenses
In addition to tracking income, you also need to keep accurate records of any work-related expenses. Typical locum tenens tax deductions include:
- Meals per-diem
- Business-related cell phone usage
- Computer/electronics purchased for work
- Health insurance premiums
- Bank and credit card fees associated with your contract work
- Professional needs (license renewals, continuing education, scrubs, lab coats, etc.)
To make this process as smooth as possible come tax time, be sure to keep all receipts and work with your accountant to deduct everything to which you are legally entitled.
Tip #4: Set Up Your Savings Plans
When you work for a single entity like a hospital, you typically have access to a retirement account. But as an independent contractor, you're responsible for setting those accounts up on your own. Fortunately, you have several tax-deductible options for retirement savings plans, including IRAs, Roth IRAs, or SEP-IRAs (Simplified Employee Pension Plan).
Another tip: If you buy your own health insurance, consider combining a "high deductible" plan with a health savings account (HSA). For 2021, an individual can make a tax-deductible HSA contribution of up to $3,600 ($7,200 for a family) and use the money to pay for medical expenses not covered by insurance.
Bottom line: If you're prepared, filing taxes doesn't have to be a stressful process. Hire a professional to help and keep your paperwork organized, and you'll be plenty prepared come tax time.