Locum Tenens Tax Guide 2024

As a leading locum tenens agency, one topic that our providers frequently asked about is how their taxes will be impacted when they choose the locum life.  In order to prepare our new locum providers, and keep our current locums informed, for the current tax season, Barton partners with Andrew Schwartz, CPA to bring all locums a free tax webinar covering the tax implications of being an independent contractor.

Watch the free webinar  at the end of this page or explore our written transcript of Andrew’s presentation below. You can also explore our most common locum tenens tax FAQs here.

Locum Tenens Tax Deductions: Overview

One of the biggest advantages of being an independent contractor is there are fewer restrictions on deducting
business expenses. This can go a long way toward reducing your taxable income and minimizing your tax
burden.

Let’s say you earn $10,000 as a locum tenens independent contractor and have $6,000 of unreimbursed
professional expenses. In this case, you’ll only pay taxes on $4,000 of your net locum tenens income.

To qualify as an allowable deduction, an expense must be both “ordinary” and “necessary” in connection with your
profession. For example, purchasing an iPad to use for work qualifies as ordinary and necessary, and therefore, is
deductible. Purchasing a leather carrying case from Gucci, however, probably doesn’t qualify. Even though you
may view your Gucci carrying case as necessary, it most likely doesn’t meet the ordinary test.

You are also not allowed to deduct any expenses that are reimbursed by your locum tenens agency or the facility
at which you work.

Let’s look at some of the professional expenses commonly incurred by locum tenens providers:

Locum Tenens Tax Deductions for Health Insurance

As long as you’re not covered under an employer-sponsored health insurance plan, being an independent contractor
allows you to write off 100 percent of your health insurance premiums paid during the year. Premiums paid for
Medicare also count for this tax break.

However, this only applies if you don’t have access to an employee-sponsored plan. For example, if your spouse
has access to health insurance through his or her job, or if one of your employers offers you insurance under its
plan, but you opt to pay for your own independent plan regardless, your premiums are not deductible.

Locum Tenens Tax Deductions for Travel, Lodging, and Meals

Unreimbursed travel, lodging, and 50 percent of meal costs incurred during a locum job outside
the general vicinity of where you live are deductible. However, the job must be for a specific
period of less than one year, and you must intend to return to the city in which you were living
prior to the assignment. You are not allowed to deduct any expenses that were reimbursed by the
locum tenens agency or facility at which you were assigned.

One option for taking advantage of these deductions is to keep track of the eligible expenses
incurred during your assignment, either by keeping all your receipts together or by charging
everything on one credit card. At the end of the trip, simply tally up what you spent.

A second, easier option is to use per diem rates., which are lump sums designed to cover eligible
expenses for an entire day. Basing the deduction on Per Diem rates an easy way to calculate
meals and incidental expenses associated with a locum tenens position without the hassle of
saving receipts.

Each year, the federal government assigns one of six per diem rates to every metropolitan area in
the continental United States and posts them at gsa.gov. The Department of Defense sets the per
diem rates for travel to Alaska, Hawaii, and U.S. territories, and makes them available here.

Please note that you can only use per diem rates for meals, incidentals, and business
entertainment. While the per diem tables do include daily rates for lodging, these rates are set
to be used by companies to reimburse their employees. Locums can only deduct actual
housing costs incurred that are not reimbursed by the agency or client.

Locum Tenens Tax Deductions for Vehicles and Automobile Expenses

Driving between job sites is deductible. So is driving between your home and a temporary job site, job interviews, and
conferences. Commuting between your home and a regular place of business generally isn’t tax deductible. If you traveled
to a locum tenens job using your own car and were not reimbursed, you can deduct automobile expenses. There are two
ways for you to calculate your automobile expenses.

First, you can use the standard mileage rate for each business mile driven, which can be found on the IRS website. The
standard mileage rate for business purposes is 65.5 cents per mile driven for 2023 and will increase to 67 cents per mile
driven in 2024. You can also include tolls and parking costs associated with any assignments.

The other option is to base your deduction on the percentage of miles your car was driven for business multiplied by the
actual costs incurred during the year. Allowable costs include gas, insurance, repairs, parking at home, and your lease
payments. If you own your car, you can deduct depreciation.

Unless you drive your car for relatively few miles each year, with most of those miles being allowable business miles,
you’re generally better off basing your deduction on the standard mileage rate.

Locum Tenens Tax Deductions for Education, Licenses, and Examinations

Costs incurred in connection with improving your skills in your current profession (e.g., continuing medical education
or perhaps an MHA) are generally deductible while costs incurred to qualify for a new trade or business isn’t
deductible.

For example, dental school is not tax deductible. However, the IRS issued regulations decades ago confirming that a
practicing dentist is allowed to deduct the cost of a specialty program, since the specialty program improves the
dentist’s skills in his or her current profession and does not qualify them for a new trade or business. Similar rules
apply to mental health practitioners who are in psychotherapy as part of training to provide that level of therapy.

Independent contractors have the option of establishing and contributing money into a pre-tax retirement
account based on net locum tenens income. Contributing to a retirement plan is one of the best tax
shelters available during one’s working years.

When you contribute to a retirement plan, your saved taxes provide you with an immediate return on
investment. Let’s assume you’re in the 28 percent federal tax rate, and you live in a state with a 5 percent
rate. Each additional dollar of income you earn is taxed at 33 percent.

In this scenario, you would earn an instant 49.25 percent return on your investment by contributing to a
retirement plan. That’s because it only costs you $670 in after-tax dollars for every $1,000 that is
invested. You’ve already earned a whopping $330 on the $670 you invested. Yes, you’ll owe taxes on the
money in your retirement accounts when you take distributions down the road, but you get to keep the
compounded growth on the government’s money (the $330 in tax savings per every $1,000 contributed)
as long as the money remains invested.

Contributing to a retirement plan is also one of the best ways to build a nest egg to fund your
post-working years. Unless you work for a government employer or a business that provides a
lucrative pension, it’s up to you to make sure you have enough money set aside to fully fund a
comfortable retirement. The earlier you start building your nest egg, the better chance you have of
reaching your retirement savings goals.