Locum work pays more per hour because the hospital just outsourced payroll taxes, benefits, and risk to you. Priced and managed properly, the trade is excellent - here is the back office.
Locum tenens compensation looks spectacular next to employed medicine - until you remember that the quoted rate now has to fund both halves of payroll tax, your health insurance, your retirement match, your disability coverage, and every week between assignments. Physicians who treat locum income like a bigger paycheck get a nasty April surprise. Physicians who treat it like business revenue usually come out ahead of their employed peers.
No one withholds anything from a 1099 check. You owe income tax plus self-employment tax - 15.3% on net self-employment earnings up to the Social Security wage base (about $184,500 in 2026), then the Medicare portion above it. The IRS expects money during the year, not just in April: pay quarterly estimated taxes, and use the safe harbor - pay at least 110% of last year's total tax in equal installments - so penalties stay at zero even when assignment income is lumpy.
Operationally: open a separate checking account for locum income, sweep a fixed percentage (many locums start at 35-40%) into a tax sub-account on every deposit, and keep books monthly. The discipline takes an hour a month and removes the single most common locum failure mode.
The comparison is never "locum $X/day vs salary $Y/year." Convert both sides to fully-loaded hourly: take the W-2 package, add the employer-paid benefits you would lose (health premiums, retirement match, CME fund, paid time off, employer payroll tax share), and divide by real hours. A useful rule: a 1099 rate needs to exceed the W-2 equivalent by roughly 30-50% before it is genuinely better pay rather than a transfer of risk to you. Then negotiate the rest: travel, lodging, and rental car paid by the agency, overtime definitions, and cancellation terms (30-day guarantees protect your calendar).
Legitimate deductions stack up fast: multi-state licenses and DEA registrations, malpractice premiums you pay, travel and lodging at assignments away from your tax home, a home office used exclusively for the business, and self-employed health insurance premiums. The headline opportunity is the solo 401(k): employee deferral (if not used at another employer) plus an employer contribution of roughly 20% of net self-employment earnings, up to $72,000 total in 2026. Above roughly $150-200k of steady net locum profit, an S-corp election is worth a conversation with a CPA - payroll and admin costs versus Medicare-tax savings - but it is not automatic.
Three coverages move onto your desk. Health insurance: marketplace plan, a spouse's plan, or an association plan - price it before quitting W-2 work. Disability: no group LTD exists here; an individual own-occupation policy (see the disability guide) becomes non-negotiable. Malpractice: agencies usually provide coverage, but read whether it is occurrence-based or claims-made - and if claims-made, get the agency's responsibility for the tail in writing. An uncovered tail on a busy specialty can cost tens of thousands of dollars years after the assignment ended.
Know your real hourly rate
The Locum Rates and Moonlighting ROI tools compare 1099 offers against your W-2 equivalent after self-employment tax, benefits, and unpaid gaps.
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