Locum Tenens Physician Entity and Estimated Taxes: The Sole Proprietor, the S Corporation at the Right Income, the Agency's W-2 Option, the Nonresident States, and the Quarterly on Assignment Income

A locum physician earning on 1099s is a business of one, and the entity question is narrower than it looks. Below a reasonable salary for the specialty, a sole proprietorship is right. Above the Social Security wage base ($184,500 in 2026) — where many full-time locums land — the S corporation's saving is the Medicare tax on distributions, worthwhile but modest, and the larger benefits are the retirement plan and the discipline of salary withholding. No entity choice restores the qualified business income deduction: medicine is a specified service business, and at higher locum incomes the deduction is reduced or gone.

The sole proprietorship

Schedule C income, self-employment tax, the travel and licensing deductions, a solo 401(k) or SEP IRA, and quarterly estimates. A single-member professional limited liability company files the same way and adds a liability shield for business obligations (not for malpractice, which the policy covers). Florida's Chapter 621 lets physicians practice through a professional corporation or professional limited liability company, which may be owned only by individuals (or professional entities) licensed to render the same professional service (Fla. Stat. 621.03, 621.05, 621.051, 621.09); the agency's contract runs to the entity.

The S corporation

| Income level | S election analysis | |---|---| | Below a reasonable salary for the specialty | No benefit; a reasonable salary absorbs the profit | | Above the Social Security wage base, with profit well beyond a reasonable salary | The saving is the 2.9 percent Medicare tax (plus the 0.9 percent additional tax) on distributions above salary; the Social Security portion is already capped | | Several hundred thousand in locum income | The election pays, and the corporation funds a solo 401(k) with employer contributions of up to 25 percent of W-2 salary; with the $24,500 employee deferral, total additions are capped at $72,000 for 2026, plus a catch-up of $8,000 at 50 or older ($11,250 at ages 60 through 63) |

The salary must be reasonable for a physician in the specialty — which for a locum is often most of the income — so the distributions are a minority share, and the saving on them is a few thousand dollars a year, net of payroll and return costs. The retirement plan and salary withholding are often the stronger reasons.

The agency's W-2 option

Some staffing agencies offer locums employment rather than contractor status: W-2 wages, withholding, the agency's benefits and retirement plan, and no self-employment tax — but no business deductions for travel, licenses, or education beyond what the agency reimburses, and no solo 401(k). A physician choosing between a W-2 rate and a 1099 rate compares them after the employer's share of payroll tax, the deductions, and the retirement contribution, not on the headline numbers.

Nonresident states

Each state with an income tax generally taxes nonresidents on assignment income earned there (some only above a filing threshold); the physician files nonresident returns and, as a Florida resident, bears those taxes without a home-state credit. Agencies generally do not withhold state tax for contractors; the physician reserves for each state as the assignment pays. An S corporation does not change the sourcing — the states look through to where the services were performed, and the corporation may have to register, file returns, and withhold state tax on the physician's salary for days worked in those states — state rules and thresholds vary.

Estimated taxes on assignment income

Assignment income arrives in blocks — a ten-week assignment pays over ten weeks, then nothing until the next. The annualized method on Form 2210 matches payments to the quarters the assignments pay; a locum with a full calendar can use the prior-year safe harbor (110 percent of last year's tax once prior-year adjusted gross income exceeds $150,000). An S corporation physician sets salary withholding to cover the federal tax, treated as paid evenly through the year, and reserves for the states separately.

The health field phase-out

Medicine is a specified service business; above the top of the phase-out range — taxable income of $276,750 for single filers and $553,500 for joint filers in 2026, with the phase-out beginning at $201,750 and $403,500 — the qualified business income deduction is zero, whatever the entity. Retirement contributions and the health insurance deduction reduce taxable income, and a physician near the range can be brought inside it; one well above it plans around the deduction's absence.

Worked example. A hospitalist earns $340,000 on 1099s, net of her travel and licensing costs, across four assignments in three states. She forms a Florida professional limited liability company, elects S status, and takes a $260,000 salary benchmarked to employed hospitalists; the $80,000 above salary — less the corporation's roughly $15,200 share of payroll tax and its plan contribution — escapes payroll tax, saving about $2,000 of Medicare tax (including the 0.9 percent additional tax) compared with a sole proprietorship. She defers $24,500 through payroll and the corporation adds a $47,500 employer contribution to her solo 401(k) — $72,000 in total, the 2026 overall limit, which binds before 25 percent of salary ($65,000) would; a catch-up of $8,000 at 50 or older ($11,250 at 60 through 63) could be added on top. Salary withholding covers her federal tax; she reserves 6 percent of each assignment's pay for the states that tax it and files three nonresident returns. After the corporation's payroll tax and plan contribution, her K-1 profit is about $17,300; as a single filer with the $16,100 standard deduction, her taxable income is about $236,700 — inside the 2026 health field phase-out range of $201,750 to $276,750 — so a partial qualified business income deduction of roughly $1,800 survives on the K-1 profit. A sole proprietor with the same plan lands in about the same place, so the retirement plan, not the entity, is what moved her into the range.

Official sources

The IRS explains: “S corporations must pay reasonable compensation to a shareholder-employee in return for services that the employee provides to the corporation before non-wage distributions may be made to the shareholder-employee.” — Internal Revenue Service, S corporation compensation and medical insurance issues, https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues

The Florida Statutes provide: “The term “professional corporation” means a corporation which is organized under this act for the sole and specific purpose of rendering professional service and which has as its shareholders only other professional corporations, professional limited liability companies, or individuals who themselves are duly licensed or otherwise legally authorized to render the same professional service as the corporation.” — Florida Legislature, The 2026 Florida Statutes, Chapter 621 — Professional Service Corporations and Limited Liability Companies, https://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0600-0699/0621/0621.html

The IRS explains: “Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.” — Internal Revenue Service, Topic no. 306, Penalty for underpayment of estimated tax, https://www.irs.gov/taxtopics/tc306

Related guides

• Locum Tenens Physician Deductions: The Tax Home You Must Keep, the Agency-Paid Lodging, the Per Diem, the Licenses in Four States, the Malpractice Tail, the Solo 401(k), and the Health Field Phase-Out
• Paying Yourself From an S Corp: The Reasonable Salary
• The 0.9 Percent Additional Medicare Tax Explained
• Income Tax in Other States: Nexus and Apportionment
• Solo 401(k) vs SEP IRA vs SIMPLE IRA

Next step

Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk runs the W-2 versus 1099 comparison, sets the S corporation salary and retirement plan, and files the nonresident returns a locum calendar creates. See pricing or book a free fit call.