Guides · Taxes

Self-Employment Tax Explained for Locum Physicians

Published 5 August 202611 min read

Self-employment tax is the line that surprises people. Not because it is hidden — every article about 1099 work mentions "15.3%" — but because 15.3% turns out to be a headline rate that almost nobody at a physician income actually pays on their whole profit, in either direction. It is applied to a smaller number than you think, it stops partway up, and one half of it comes back as a deduction.

This guide works through the mechanics, because the shape of the tax determines several planning decisions that follow from it — whether an S-corp is worth anything, when in the year an extra shift is cheapest, and what a deduction is really worth.

What it is, and why it exists

Employees and their employers each pay 7.65% in FICA: 6.2% for Social Security (technically OASDI) and 1.45% for Medicare. The employer's half never appears on a payslip, which is why most people believe payroll tax costs them 7.65%. It costs 15.3%; half of it is simply invisible.

When you work for yourself there is no employer, so IRC § 1401 imposes both halves on you directly as self-employment tax: 12.4% for Social Security and 2.9% for Medicare, reported on Schedule SE. It is not an extra tax. It is the same tax, made visible.

Step one: it is not charged on your whole profit

Self-employment tax applies to net earnings from self-employment, which IRC § 1402(a)(12) defines as 92.35% of Schedule C net profit. The 7.65% haircut exists to put you on the same footing as an employee, whose wages are already net of the employer's share.

So on $321,000 of net profit, the base is not $321,000 — it is $296,443. What that $24,557 reduction is worth depends on where you sit: at a physician income it lands entirely above the Social Security wage base, so it is taxed at only the 3.8% Medicare-plus-surtax rate and saves about $930. For a part-time PA or NP whose whole profit sits below the wage base, the same haircut is worth 15.3% of it.

There is also a floor: if net earnings come to less than $400, no self-employment tax is due at all. That matters for someone doing a handful of shifts a year, and for essentially nobody else reading this.

Step two: the Social Security half stops

This is the part that changes planning. The 12.4% Social Security component applies only up to the annual contribution and benefit base, which the SSA set at $184,500 for 2026, up from $176,100 in 2025. Above that, Social Security tax simply stops. The maximum Social Security portion anyone pays in 2026 is 12.4% × $184,500 = $22,878.

The 2.9% Medicare component has no ceiling and applies to every dollar of net earnings. On top of it, § 1401(b)(2) adds the 0.9% Additional Medicare Tax on self-employment income above $200,000 (single and head of household) or $250,000 (married filing jointly). Those thresholds are fixed in the statute and are not indexed for inflation, so more people cross them every year.

Step three: half of it comes back

IRC § 164(f) allows a deduction for one-half of self-employment tax, taken above the line so you get it whether or not you itemise. It reduces adjusted gross income, and therefore federal income tax and most states' income tax.

Two limits are easy to miss. The deduction covers half of the 15.3% component only — the 0.9% Additional Medicare Tax is not deductible at all. And the deduction reduces income tax, never self-employment tax itself. You cannot use it to shrink the Schedule SE bill.

The whole thing, on real numbers

A locum physician at $1,600 a day, five days a week, 42 weeks: $336,000 of gross receipts, $15,000 of deductible business expenses, $321,000 of Schedule C net profit.

Ten point one per cent, not 15.3%. And after the income tax saved by the § 164(f) deduction — roughly $5,500 at a 35% marginal rate — the net cost is nearer 8.4% of profit. That is a large number in absolute terms and a very different number from the one in the headline.

If you also have W-2 wages

Plenty of locums keep a part-time employed post, or start the year employed and go independent in the spring. The interaction is worth understanding: W-2 wages consume the Social Security wage base first.

If you earned $120,000 in wages before going independent, only $64,500 of the base remains, so only the first $64,500 of your net earnings from self-employment pays the 12.4%. The rest pays Medicare only. The same logic applies to the $200,000 Additional Medicare threshold, which is measured across wages and self-employment income combined, with wages counted first.

This is genuinely favourable and frequently missed by people doing a rough estimate. It is also why the calculator asks for your other W-2 wages: without them the estimate can overstate your self-employment tax by five figures.

What actually reduces it

This is the most useful practical point in the guide, and it is counterintuitive.

• Business expenses reduce it. Anything deductible on Schedule C lowers net profit, which lowers net earnings, which lowers self-employment tax. A Schedule C deduction is therefore worth your marginal income tax rate plus your marginal self-employment rate.
• Retirement contributions do not. A solo 401(k) or SEP contribution is deducted on Form 1040, after net profit is fixed. It saves income tax and nothing else.
• The self-employed health insurance deduction does not. Same reason — it sits on Form 1040, not Schedule C.
• The QBI deduction does not. And for a physician, PA, NP or CRNA at these incomes it is usually zero anyway, because health is a specified service trade or business.
• An S-corp election can, at the margin. By splitting profit into salary and distribution — but only on the 2.9%–3.8% Medicare band once you are above the wage base, which is a much smaller prize than the pitch implies. See the S-corp analysis.

How you actually pay it

Self-employment tax is computed on Schedule SE and carried to Form 1040, where it sits alongside income tax as part of your total tax. That combined figure is what the quarterly instalments under IRC § 6654 are meant to cover — which is why a locum's quarterly payment is so much larger than an employee's intuition suggests. On the example above, self-employment tax alone is $8,086 a quarter before a dollar of income tax. The estimated tax guide covers the mechanics and the safe harbours.

One thing it buys you

Unlike most tax, the Social Security half is not purely a cost: it credits your earnings record and increases your eventual benefit, up to the wage base. Someone who structures aggressively to minimise Social Security wages over a career — an S-corp with a very low salary, for instance — is also reducing their future benefit. For a physician who will hit the base every year regardless, this is largely academic. For a part-time PA or NP whose earnings sit near or below the base, it is a real consideration and worth raising with an adviser rather than optimising away.

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