Guides · Employment status

1099 vs W-2 for Locum Tenens

Published 5 August 202612 min read

A hospital offers you $290,000 as an employed physician. An agency offers you $1,600 a day. Those are not comparable numbers, and almost nobody does the conversion properly, because the parts that differ are invisible on both offer sheets.

This guide prices the difference. The short answer is that a 1099 day rate has to be meaningfully higher than the employed equivalent before it wins on money alone — and that people who move to locum work and are glad they did usually did it for the control, not for the arithmetic.

What actually changes

Employment status is not a preference either party gets to choose freely; it is a legal characterisation based on the degree of behavioural and financial control, tested under the common-law factors the IRS sets out in its worker-classification guidance. Most locum arrangements are genuinely independent: you set your availability, you work through multiple agencies, you carry your own licences. Some agencies do offer W-2 locum work, and a few facilities insist on it.

Six things move when the status changes.

1. You pay both halves of payroll tax

An employee pays 7.65% FICA and never sees the matching 7.65% the employer pays on top. A self-employed person pays the combined 15.3% as self-employment tax under IRC § 1401, on 92.35% of net profit. For 2026 the 12.4% Social Security component stops at $184,500; the 2.9% Medicare component never stops, and a 0.9% surtax applies above $200,000 single or $250,000 joint.

On the $321,000 net profit used in the worked example below, the employer half you have taken on is $15,738 — the amount a hospital would have paid on your behalf and you now pay yourself. You get it back as an above-the-line deduction against income tax, which recovers roughly a third of it at a 35% marginal rate, so the real cost is around $10,000 a year. It is the single biggest line in the comparison.

2. Nobody withholds anything

Your income tax and self-employment tax become four quarterly instalments you calculate and pay yourself. This is an administrative change, not an economic one — but it destroys more first-year locums than any other single item, because the money arrives, feels like income, and gets spent. See estimated quarterly taxes.

3. Benefits stop existing

No health insurance, no employer retirement match, no paid leave, no paid parental leave, no employer-paid disability or life cover, no CME allowance, no licensing reimbursement. Some of these you replace at your own cost; some you simply lose. An employed physician package commonly carries $40,000–$60,000 of value here, and none of it appears on the offer letter as a number.

4. Unpaid weeks are entirely yours

An employed contract pays you 52 weeks a year including holiday and sick leave. A locum bills only the days worked. Working 42 weeks instead of 48 is a 12.5% pay cut that no rate negotiation will show you. This is why the calculator asks how many weeks you actually work rather than assuming a full year — the answer moves the result more than most people expect.

5. Business expenses become deductible — and become yours

Licences in four states, DEA registration, CME, board fees, professional dues, malpractice where the agency does not cover it, and travel the agency will not reimburse. All deductible under IRC § 162, which softens the blow considerably: a Schedule C deduction is worth your marginal income tax rate plus the applicable self-employment rate. But deductible is not free, and unrecorded is not deductible.

6. The safety net thins out

In most states an independent contractor is not covered by unemployment insurance and cannot claim if an assignment is cancelled. Workers' compensation generally does not apply either. Neither shows up in any pay comparison, and both are real.

The arithmetic, on one contract

Take a full-time locum physician: $1,600 a day, five days a week, 42 working weeks. Gross receipts of $336,000. Single filer, Texas, so no state income tax to muddy the comparison. Suppose the agency covers malpractice and travel, and the physician's own deductible business costs — CME, licences, DEA, dues, accounting — come to $15,000 a year. Health insurance costs $12,000.

To leave a single filer in Texas with the same $210,881 after tax, an employed job carrying malpractice, health cover, CME and licensing would need to pay roughly $293,000 in salary. Not $336,000 — because the employed job does not make you pay the employer half of FICA, and because the business expenses come off the hospital's books rather than yours.

So the conversion is not "day rate times days". A rough rule that holds up reasonably well at physician income levels: a 1099 gross figure is worth about 85–88% of the same number as an employed salary — 87% in this example — before you price benefits at all. Then add whatever the employed package's benefits are worth on top of its salary.

When the 1099 side genuinely wins

It is not a foregone conclusion in the other direction either. The 1099 structure has real advantages:

• Retirement capacity. A solo 401(k) allows the $24,500 elective deferral for 2026 plus an employer contribution of roughly 20% of net profit, up to $72,000 in total annual additions — usually far more than an employed plan permits, and entirely under your control. See solo 401(k) vs SEP-IRA.
• Deductions. Everything genuinely business-related reduces both income tax and self-employment tax. An employee lost unreimbursed business expense deductions entirely after 2017.
• Rate flexibility. Locum rates move with local demand, and a scarce specialty in an undesirable location can command a rate no salaried post will match.
• Control. Which is what most people actually buy: the ability to work six months, take three off, and say no.

What the 1099 structure does not buy you is the section 199A deduction. Medicine is a specified service trade or business, and at these income levels the 20% pass-through deduction is zero regardless of how you organise. That is covered in the S-corp guide.

W-2 locum work exists, and it is not a downgrade

Some agencies offer locum assignments on a W-2 basis. That means the agency withholds, pays the employer half of FICA, and typically offers a group health plan and a 401(k). The quoted rate will be lower than the 1099 equivalent, and it should be — the agency is absorbing about 7.65% of payroll tax plus benefit costs.

W-2 locum work is usually the better answer if you work a small number of weeks a year, if you have no appetite for quarterly estimates and bookkeeping, or if you cannot get health cover any other way. It is usually the worse answer if you work close to full time, because you lose the deductions and the retirement capacity that make the 1099 structure worthwhile.

Ask the agency for both quotes on the same assignment. Many will give you both, and the spread between them tells you what the agency thinks the employment burden costs — which is useful information regardless of which you take.

Before you decide

1. Get the day or hourly rate and the guaranteed minimum days, in writing.
2. Establish exactly who pays malpractice, and whether tail is included — see malpractice and tail cover.
3. Ask what travel and lodging the agency books directly versus reimburses versus expects you to fund.
4. Price health cover for your actual family before you compare anything.
5. Count the weeks you will realistically bill, not the weeks in a year.
6. Run both offers through the calculator and compare spendable against spendable.

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