Guides · Business structure

LLC for Locum Tenens: Do You Actually Need One?

By Emre CeylanPublished 6 September 202612 min read

It is the first thing another locum tells you to do, usually within a sentence of finding out you went 1099. Form an LLC. It will save you tax and protect you if you get sued.

Both halves of that are wrong, and the second half is wrong in a way that could cost you a great deal more than the filing fee.

What an LLC actually is

A limited liability company is a state-law entity. You register it with a state, pay a fee, and from that point the business is legally distinct from you for certain purposes. That is the whole of it.

Notice what is not in that description: taxes. The IRS does not have an "LLC" category. Under the entity classification regulations, a domestic LLC with one owner is disregarded as an entity separate from its owner by default. The tax code looks straight through it and sees you.

What it does to your tax bill: exactly nothing

Not "a little". Not "it depends". Zero. The same Schedule C, the same self-employment tax, the same everything.

If someone told you an LLC would lower your taxes, they were either thinking of the S-corp election — a different thing, covered below — or repeating something they never checked.

The dangerous myth: it will not stop a malpractice claim

This is the one worth reading twice.

Limited liability protects an owner from the debts and obligations of the business. It has never protected a professional from liability for their own professional negligence. When a patient sues over care you provided, they sue you — the licensed clinician whose hands were on the case. The entity on your invoices does not appear in that analysis.

This is not a loophole or a drafting problem. It is the settled position everywhere, and it is why states impose malpractice insurance requirements on individual licensees rather than on their companies.

What actually stands between a claim and your personal assets is your policy — its type, its limits, and whether the tail is bought. If you have been treating an LLC as your liability plan, the urgent job is not a state filing; it is reading what your malpractice cover actually does, especially whether it is claims-made and who pays for the tail when the assignment ends.

It does not create a QBI deduction either

The 20% qualified business income deduction under § 199A turns on what the business does, not how it is organised. The performance of services in the field of health is a specified service trade or business under § 199A(d)(2)(A), and above the top of the phase-in range the deduction is zero for a physician, PA, NP or CRNA — sole proprietor, LLC, PLLC or S-corporation alike.

In the table above the deduction is $0 in both columns. Restructuring does not move it, because the test is the work, not the wrapper.

What an LLC does do

A short and honest list. None of these are nothing; none of them are what the internet promised.

• Separates non-professional liability. Business contract disputes, a lease on office space, an employee you hire, a vendor claim — these sit with the entity. For most locums that surface area is small, but it is not zero.
• Satisfies agencies that require an entity. Some clients and agencies will only contract with a business rather than an individual. If that is the actual reason, it is a good reason.
• Makes the S-corp election available. You need an entity before you can elect S-corp taxation. The LLC is the doorway, not the room.
• Forces clean books. A separate EIN and bank account make substantiating business deductions far easier. You can get the same discipline without an LLC, but most people do not.
• Name protection in the state of registration, which matters if you are building something with a brand.

PLLC, PC, and why you may not be allowed an ordinary LLC

Many states will not let a licensed professional deliver services through a standard LLC. They require a professional entity — a PLLC or a professional corporation — with ownership restricted to licensed members and sometimes approval from the licensing board before the secretary of state will register it.

Layered on top in a number of states is the corporate practice of medicine doctrine, which limits who may own an entity that provides medical services. It is why a physician cannot always simply file the same paperwork a consultant would.

The requirements vary by state and by profession, and getting it wrong can mean an entity that is not valid for the work you are doing. Check the secretary of state and the licensing board in your state of registration before filing anything.

What it costs to keep

Formation is cheap almost everywhere. Maintenance is where the money goes, and it is state-specific:

• California charges an $800 minimum franchise tax plus an annual LLC fee scaled to gross receipts — payable whether the business made money or not.
• Delaware charges an annual franchise or LLC tax on registered entities regardless of income.
• Texas imposes a franchise ("margin") tax above the no-tax-due threshold and requires an annual report either way.
• Nevada charges an annual state business licence fee.
• Most states add a registered-agent fee if you do not have an address there, and an annual report.

And if you work in several states, an entity registered in one may need foreign qualification in the others — another filing and another fee per state. That interacts with the fact that you already owe nonresident state returns wherever you worked.

LLC is not S-corp — and the money is in the second one

These get used interchangeably and they are different categories of thing. An LLC is an entity. An S-corporation is a tax election that an eligible entity makes by filing Form 2553.

On the $312,000 profile above, the calculator puts the S-corp saving at roughly $3,314 a year in Texas after running costs — real, but smaller than the pitch, and it comes with a reasonable-compensation question you have to defend. In several states the entity-level taxes eat much of it: New York City does not recognise S-corporation status at all, Tennessee taxes an S-corp at 6.5%, and California adds 1.5% on top of the $800 minimum. The full analysis is in should a locum form an S-corp.

When forming one is actually the right call

1. A client or agency requires it to contract with you. Decisive on its own.
2. You are about to elect S-corp status and the arithmetic works in your state at your profit level.
3. You have genuine non-clinical business exposure — employees, premises, equipment leases, a side business.
4. You are building something with a name you intend to keep.

Absent one of those, a locum working through agencies with good malpractice cover and clean records is not obviously better off for having one. The honest default answer to "do I need an LLC?" is not yet, and the money is better spent on getting the malpractice tail question answered in writing.

What this article cannot decide for you

Entity formation is state law, and it interacts with your licensing board, your agency contracts, your asset protection position and your family circumstances. This page is about the two claims that are made most often and are wrong most often. A decision to form — or to elect — belongs with a CPA and, for the professional-entity rules, a lawyer licensed in your state.

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