Is an S corp worth it for a physician practice?
It depends on how much of the practice's profit comes from something other than the physician's own services. An S-corporation election does not change what the practice does; it changes how the owner's income is taxed. A sole proprietor or single-member LLC owner pays self-employment tax on the entire net profit of the practice (Section 1402). In an S-corporation, only the physician's wages carry Social Security and Medicare tax, and the profit above a reasonable salary passes through on a Schedule K-1 without them. The saving is the employment tax on profit attributable to employed physicians, nurse practitioners, and physician assistants producing under the owner, to ancillary services such as in-office imaging or laboratory performed by staff and equipment, and to the equipment and facility. A solo physician who personally produces nearly all of the collections has less room, because the IRS's guidance on S-corporation compensation treats gross receipts generated by the shareholder's personal services as pointing toward wages, and only receipts generated by non-shareholder employees or by capital and equipment support non-wage distributions. Two features of physician income shrink the arithmetic. The Social Security portion of self-employment tax stops at the contribution and benefit base for the year, reduced by any wages already paid (Section 1402(b)(1)), so for an owner whose profit passes that base the tax at stake on the excess is the Medicare portion and, above the statutory thresholds, the Additional Medicare tax (Section 1401(b)(2)), and that is the most the election can save on that excess. And medicine is a specified service trade or business under Section 199A, so the election does not preserve the qualified business income deduction once the owner's taxable income passes the phase-out range. Against the saving run the costs: payroll, a separate Form 1120-S, higher preparation fees, and a salary figure the practice must be able to defend. The election is federal; a professional corporation or PLLC can generally make it, subject to the shareholder limits in Section 1361 and to state law, which generally restricts ownership of a professional medical entity to licensed physicians.
How much should a physician pay themselves as an S corp salary?
Enough to be reasonable compensation for the clinical and management services the physician actually performs, paid before any non-wage distributions are taken. There is no formula and no percentage in the Internal Revenue Code or the regulations; the IRS applies factors drawn from case law, including training and experience, duties and responsibilities, time and effort devoted to the business, what comparable businesses pay for similar services, and what the corporation pays non-owner employees. For a physician the market comparison is direct: what an employed physician in the same specialty would be paid for the same clinical schedule, plus a market rate for the hours spent running the practice, because a producing owner who also manages is doing two jobs. The IRS's guidance directs the analysis to the source of the practice's gross receipts. Collections the physician personally produces point toward wages; collections produced by employed providers and by ancillary services performed by staff and equipment, and the return on the equipment and facility, can support non-wage distributions. A physician-owner whose practice has no other providers and whose collections are entirely personal services therefore has little that can be defended as a distribution. Two boundaries hold in every case: reasonable compensation must be paid before non-wage distributions, and the IRS's position is that it never exceeds the amount the shareholder actually received from the corporation, directly or indirectly. A written, dated analysis prepared when the salary is set, citing the specialty compensation data relied on, is what supports the figure in an examination.
Does a physician practice qualify for the QBI deduction?
Yes at or below the income threshold, partially through the phase-out range, and not at all above it. Medicine is a specified service trade or business (SSTB): the regulations under Section 199A define the field of health to include physicians performing services in that capacity (Treasury Regulation 1.199A-5(b)(2)(ii)). For an SSTB, the 20% qualified business income deduction is not restricted by the SSTB rule when the owner's taxable income does not exceed the threshold amount, is reduced across a phase-out range above it, and is eliminated once taxable income exceeds the top of that range, regardless of how much W-2 wage the practice pays or how much property it owns. Public Law 119-21 removed the deduction's scheduled expiration and, for tax years beginning after December 31, 2025, widened that range to $75,000 above the threshold, or $150,000 on a joint return (Section 199A(d)(3)); the threshold amount itself is indexed for inflation and should be confirmed for the specific year against the Form 8995-A instructions. Three consequences follow for physicians. First, the test runs on the owner's taxable income from all sources, not on the practice's profit, so a spouse's income on a joint return, retirement plan contributions, and depreciation all move it. Second, wages from employment are never qualified business income (Section 199A(d)(1)(B)), while 1099 income from locum tenens work, shifts, or directorships is income of a trade or business and can qualify, subject to the same SSTB limit and, where the payer treated the physician as an employee for substantially the same services within the prior three years, to the rebuttable presumption in Treasury Regulation 1.199A-5(d)(3) that the physician is still performing services as an employee. Third, not every business a physician owns is in the field of health: the regulations give the example of an outpatient surgical center that bills facility fees, employs no physicians, nurses, or medical assistants, and contracts with medical professionals for all patient care, and conclude that it is not performing services in the field of health (Treasury Regulation 1.199A-5(b)(3), Example 3); whether a physician-owned facility or a separate rental entity is treated that way depends on its own facts and on the common-ownership rule in Treasury Regulation 1.199A-5(c)(2).
How is 1099 income taxed for a physician doing locums, ER shifts, or moonlighting?
As self-employment income, with no tax withheld. Payments a physician receives as an independent contractor, whether from a locum tenens agency, a staffing company, a hospital medical directorship, or a moonlighting arrangement, are gross income of a trade or business reported on Schedule C, and the net profit after ordinary and necessary expenses, reduced by the deduction in Section 1402(a)(12) equal to one-half of the combined Social Security and Medicare rates applied to it, is net earnings from self-employment (Section 1402(a)). Self-employment tax is 12.4 percent for Social Security plus 2.9 percent for Medicare (Section 1401(a) and (b)(1)), with an Additional Medicare tax of 0.9 percent on self-employment income above $200,000, or $250,000 on a joint return (Section 1401(b)(2)). The Social Security portion applies only up to the contribution and benefit base for the year, and wages already paid count against that base first (Section 1402(b)(1)), so a physician whose W-2 salary has already reached the base owes only the Medicare portions on the 1099 income, while the Additional Medicare threshold is reduced by the W-2 wages (Section 1401(b)(2)(B)). Three deductions offset part of it: one-half of the self-employment tax other than the Additional Medicare tax (Section 164(f)); health insurance premiums for the physician and family, limited to the earned income of the 1099 activity and unavailable for any month the physician is eligible for a subsidized plan of an employer or a spouse's employer (Section 162(l)); and the ordinary and necessary costs of the work, such as malpractice premiums the physician pays, licenses and DEA registration, board certification and continuing education, and professional dues (Section 162(a)). Because nothing is withheld, the tax is paid through quarterly estimated payments under Section 6654 or by raising withholding on a W-2 job, and the Section 6654 safe harbors set how much must be paid in to avoid the underpayment penalty. Whether the payer's label is right is a separate question: the IRS classifies a worker by behavioral control, financial control, and the type of relationship, not by the form the payer chose, and either party can ask for a determination on Form SS-8. An S-corporation for a physician whose only income is 1099 personal services changes little of this: the IRS's guidance treats receipts generated by the shareholder's own services as pointing toward wages, which leaves little profit that can be defended as a non-wage distribution, while the payroll and Form 1120-S costs are certain.
Can a locums physician deduct travel and housing, and which states tax the income?
Travel is deductible only while the physician is away from a tax home on a temporary assignment, and each state where the work is performed can tax it. Section 162(a)(2) allows traveling expenses, including meals and lodging that are not lavish or extravagant, while away from home in the pursuit of a trade or business, and Section 274(n) limits the meal portion to 50 percent. Home for this purpose is the tax home: the physician's regular or main place of business, or, when there is none because of the nature of the work, it may be the home where the physician regularly lives, judged by whether business is performed in that area, living expenses there are duplicated, and the home has not been abandoned. An assignment in a single location is generally temporary if it is realistically expected to last, and does last, one year or less; the statute treats no period of employment that exceeds one year as temporary, and an assignment realistically expected to last more than a year is indefinite from the start, whether or not it actually lasts that long, which makes that location the new tax home and ends the deduction there. An assignment that starts as temporary becomes indefinite once changed circumstances make it realistic to expect it to exceed a year, and a series of short assignments to the same location that together cover a long period may be treated as one indefinite assignment. A physician who moves from assignment to assignment with no regular place of business and no home that is regularly maintained is an itinerant whose tax home is wherever the work is, and an itinerant cannot deduct travel because there is no home to be away from. Costs the agency pays directly, or reimburses after the physician accounts to the agency for them, are not deducted again by the physician; a reimbursement or allowance the physician does not account for is included in income, and those costs, like any other costs the physician bears, are deducted on Schedule C when they qualify. State income tax is a separate question that federal law does not answer. A state with an income tax generally taxes a nonresident on compensation for services performed inside it, the state of residence generally taxes all of a resident's income and generally allows a credit for tax paid to another state on the same income, and a state with no personal income tax, such as Florida, adds nothing on the residence side, so a Florida physician working assignments in taxing states generally files nonresident returns there with no home-state credit to absorb them. Filing thresholds and nonresident rules vary by state, so each assignment state is checked before the assignment is accepted.
How are direct primary care membership fees taxed, and can patients pay them from an HSA?
For the practice, a membership fee is gross income when it is received if the practice uses the cash method, which includes an annual fee paid in advance (Section 451(a)); a practice on the accrual method that receives an advance payment for services may elect to include in income the portion earned in the year of receipt, or the portion reported as revenue in an applicable financial statement if it has one, and the remainder in the following year, and no later (Section 451(c) and Treasury Regulation 1.451-8). For the patient, Public Law 119-21 changed the rule for months beginning after December 31, 2025. A direct primary care service arrangement is not treated as a health plan in deciding whether a patient covered by a high deductible health plan is eligible to contribute to a health savings account (Section 223(c)(1)(E)), and fees for such an arrangement are not excluded from qualified medical expenses as a payment for insurance, so they can be paid from the HSA (Section 223(d)(2)(C)(v)). The definition governs whether a practice's membership qualifies. The arrangement must provide medical care consisting solely of primary care services furnished by primary care practitioners, the sole compensation must be a fixed periodic fee, and the aggregate fees for all such arrangements for the individual cannot exceed $150 for the month, or twice that for an arrangement covering more than one individual, with the dollar amount indexed for inflation for tax years beginning after 2026. Three categories of service are excluded from primary care services for this purpose: procedures that require general anesthesia, prescription drugs other than vaccines, and laboratory services not typically administered in an ambulatory primary care setting. A membership that bundles an excluded service, charges more than the monthly limit, or is compensated by anything other than a fixed periodic fee does not meet the definition for that month. The Treasury Department is directed to issue regulations or other guidance on the exclusions, so the definition should be re-checked against that guidance as it appears. The fee remains income of a specified service trade or business for the qualified business income deduction, and the change does not alter how the practice's own S-corporation or self-employment tax applies.
General educational information about United States federal tax rules, current as of the review date above. Tax law changes and every situation turns on its own facts. This is not tax, legal, or financial advice and does not create a client relationship. Inflation-adjusted figures should be confirmed for the year in question before relying on them.
