Locum tenens pay, self-employment tax and take-home, explained
A locum tenens offer is refreshingly simple compared with a travel nursing package: one rate, no stipends, no blended-rate arithmetic. That simplicity is also the trap. Everything a hospital used to absorb on your behalf — the employer half of payroll tax, malpractice, health cover, retirement, the tax withholding itself — has been moved onto your side of the ledger without anybody writing it down. The gap between a $1,600 day rate and what lands in your account is bigger than almost every new locum expects.
What being a 1099 contractor actually changes
Most locum assignments are structured as independent contractor engagements. You are not an employee of the agency or of the facility; you are a business, paid gross, and the payer reports what it paid you on Form 1099-NEC. From 2026 that form is only required above $2,000 rather than the old $600, a change made by the One Big Beautiful Bill Act — which changes nothing about what you owe. Income is taxable whether a form arrives or not.
Three consequences follow, and they compound:
- You pay both halves of payroll tax. An employee pays 7.65% FICA and never sees the matching 7.65% the employer pays. A self-employed person pays the combined 15.3% as self-employment tax under IRC § 1401.
- Nothing is withheld. The full income tax and self-employment bill is yours to estimate and pay quarterly. Getting this wrong is the single most common first-year locum mistake.
- Your expenses are now yours. Licences, DEA registration, CME, professional dues, travel your agency does not cover, and often malpractice. In exchange they become deductible business expenses under IRC § 162 — but only if you record them.
There is no equivalent of the travel-nursing tax-free stipend here. If an agency reimburses your flights and hotel under an accountable plan, that money is simply not income and the corresponding expense is not deductible. If it pays you a flat "travel allowance" with no substantiation, that is ordinary 1099 income and you deduct the actual costs. Either way there is no untaxed slice of the package.
Self-employment tax: the 15.3% that is not really 15.3%
Self-employment tax is calculated on net earnings from self-employment, which IRC § 1402(a)(12) defines as 92.35% of your Schedule C net profit. On that base you pay 12.4% for Social Security and 2.9% for Medicare.
The Social Security half stops. For 2026 it applies only up to the contribution and benefit base of $184,500. Above that, only the 2.9% Medicare component continues, plus the 0.9% Additional Medicare Tax on self-employment income over $200,000 single or $250,000 joint. For a full-time locum physician this matters enormously: the marginal self-employment cost of one more shift falls from 15.3% to 3.8% once you cross the wage base, usually somewhere in the second quarter of the year. It is also why the "save 15.3% with an S-corp" pitch is misleading for high earners — by the time an S-corp is worth considering, most of your profit is only exposed to the 2.9%–3.8% Medicare band.
One half of the 15.3% component — not the 0.9% surtax — is deductible above the line under IRC § 164(f). It reduces income tax only, never the self-employment tax itself.
Why the 20% QBI deduction almost certainly does not apply to you
Section 199A gives many pass-through businesses a 20% deduction on qualified business income. It is the most commonly mis-sold benefit in physician tax planning, because § 199A(d)(2)(A) classifies "the performance of services in the field of health" as a specified service trade or business. For an SSTB the deduction phases out over a band and then vanishes.
For 2026 the threshold amounts are $201,775 (single and head of household) and $403,550 (married filing jointly), per IRS Revenue Procedure 2025-32. The One Big Beautiful Bill Act made § 199A permanent and widened the phase-in range from $50,000/$100,000 to $75,000/$150,000. So the deduction reaches zero for an SSTB at $276,775 of taxable income for a single filer and $553,550 for joint filers. A full-time locum physician is normally well above the single figure.
Two things follow. First, no entity choice fixes this: an LLC, a PLLC and an S-corporation are all still businesses performing services in the field of health, and the test looks at what the business does. Second, if your taxable income sits inside the phase-in band, anything that lowers taxable income is worth far more than its headline value — a retirement contribution in that band can carry an effective marginal benefit well above your bracket rate, because it restores part of the deduction as well as reducing income.
Expenses are the only lever that reduces self-employment tax
Retirement contributions, the health insurance deduction and the QBI deduction all reduce income tax and leave self-employment tax untouched. Business expenses on Schedule C are different: they reduce net profit, so they reduce both. A deduction on Schedule C is worth your marginal income tax rate plus the applicable self-employment rate — often more than 45 cents on the dollar early in the year, and still around 35–40 cents once you are past the Social Security wage base.
The rules are ordinary § 162 rules, with two traps specific to this work. Business meals, including meals while away from home on assignment, are deductible at 50% under IRC § 274(n); a self-employed person may substantiate the amount using the federal M&IE per diem rate rather than keeping receipts under Revenue Procedure 2019-48, but the 50% haircut still applies and there is no per diem shortcut for lodging — that has to be actual cost. And travel expenses are only deductible while you are away from your tax home on a temporary assignment; an engagement realistically expected to last more than a year is indefinite, and the travel deduction stops.
How this calculator works
The tool runs one complete tax year and then scales it to your contract, in this order:
- Gross receipts: your rate multiplied by days or hours and by the weeks you say you work in a year.
- Deductible business expenses subtracted, with meals reduced to 50%. Note that cash out and deduction differ: you pay for all the food.
- Self-employment tax on 92.35% of the resulting net profit — 12.4% up to $184,500, 2.9% throughout, plus the 0.9% surtax above the threshold. If you enter other W-2 wages, those consume the Social Security base first.
- Half of the self-employment tax, your retirement contribution and your health insurance premium subtracted above the line to reach AGI. The health deduction is capped at your earned income after the other two.
- Standard deduction and the § 199A deduction subtracted to reach federal taxable income, which goes through the 2026 brackets from Revenue Procedure 2025-32.
- State income tax computed on AGI using each state's published 2026 single-filer schedule, plus any local rate you supply on net profit.
- The whole-year result is scaled back to the contract by revenue share, so the marginal bracket stays realistic instead of pretending a twelve-week contract is a tax year.
The S-corporation module runs the same year twice. As a sole proprietor you pay self-employment tax on all net profit. As an S-corporation you pay employee and employer FICA on the salary you set, plus FUTA, plus the running costs, and the remaining distribution passes through free of payroll tax. The comparison is all-in cost against all-in cost, and it subtracts the fees rather than quietly ignoring them.
What it deliberately does not model: tax credits, itemised deductions, other household income, multi-state apportionment and nonresident returns, state gross receipts taxes (Washington B&O, Hawaii GET, New Mexico GRT, DC's unincorporated business franchise tax), state pass-through entity taxes, the requirement that a more than 2% S-corporation shareholder run health premiums through payroll, and state disability or paid-leave levies. Every one of those is flagged where it is likely to bite. It is a planning estimate, not a tax return.
The habit worth building in month one
Open a separate business account, route every contract payment into it, and move a fixed percentage into a second account the day each payment arrives. Then pay the quarterly instalments from that second account and never look at the balance as if it were yours. Locums who get into trouble almost never got the tax arithmetic wrong; they spent money that was already spoken for.
Go deeper
Ten sourced guides on the parts of locum tenens pay that cost people money. Written for physicians, PAs, NPs and CRNAs on 1099 contracts — not for travel nursing or travel therapy, where the tax structure is entirely different.