Locum tenens taxes are due during the year, not just in April. Assante Wealth Management sizes quarterly estimates by adding income tax and self-employment tax on the 1099 net, then testing that total against last year's tax.
Many doctors assume hospital withholding covers locums pay, but agencies withhold nothing. You avoid the penalty only when withholding plus estimates reach 100 percent of last year's total tax, or 110 percent when last year's AGI topped $150,000.
The 2026 Social Security wage base is $184,500, so the result can change sharply once your W-2 wages cross it. Assante Wealth Management puts the reserve amount and each due date on the same one-page plan as the decision to keep, reduce, or expand your locums work.
By Michael Donovan, AIF — Chief Investment Officer | Reviewed by Hiroshi Tanaka, CFPMichael leads the investment committee, setting strategic asset allocation guidelines and reviewing manager performance quarterly.
What do I need in hand before I figure the estimate?
Start with last year's Form 1040, your latest W-2 pay stub, each locums contract, and your own expense receipts. The Form 1040 shows total tax and AGI, the pay stub shows federal withholding and Social Security wages so far, contracts show booked shifts and reimbursements, and receipts support licensing, DEA, and CME costs you paid yourself.
The 1099-NEC from each agency arrives in late January, after three of the four estimated-payment dates have passed. Assante Wealth Management uses a shift log and deposit record during the year, then matches those records to each IRS Form 1099-NEC when it arrives.
Check the Social Security wages on the pay stub first. If they will pass the SSA wage base of $184,500 for 2026, the Social Security portion of self-employment tax on locums pay can drop to zero.
- Last year's Form 1040 total tax
- Latest W-2 pay stub
- Agency contracts and shift log
- License, DEA, and CME receipts
My hospital paycheck withholding will cover the locums money
It will not cover 1099 locums income unless you deliberately increase it: W-2 withholding is based on your group salary, while a locums agency usually sends the full contractor payment with no federal tax removed. Every dollar of locums net needs a funding source.
The IRS safe harbor gives you three paths out of an underpayment penalty: pay 90 percent of this year's total tax, 100 percent of last year's total tax, or 110 percent of last year's total tax when prior-year AGI exceeded $150,000. April can still bring a balance due even if you meet that safe harbor.
Extra withholding has one unusual advantage. For penalty purposes, the IRS counts withheld tax as if it arrived in equal pieces across the year, even when payroll only starts taking more out in November. That is why a new Form W-4 can repair a late start better than a late quarterly voucher can.
Move the projected federal tax from every locums check into one reserve account on arrival. By each due date, withholding plus estimates should equal 100 percent of last year's total tax, or 110 percent above the $150,000 AGI threshold.
- Use last year's total tax
- Check the 110 percent threshold
- Change Form W-4 if behind
Locums pay loses the full 15.3 percent to self-employment tax
Not for many full-time physicians. Self-employment tax is calculated on 92.35 percent of net earnings, and the 12.4 percent Social Security share stops once W-2 wages plus self-employment earnings reach the 2026 SSA wage base of $184,500. A physician already above that base generally faces the 2.9 percent Medicare share plus any applicable Additional Medicare Tax, so the locums calculation is often closer to 3.8 percent of self-employment earnings than 15.3 percent.
How much should I set aside from each locums check?
Set aside the projected federal tax on locums net, divided by that net, every time a check arrives. Assante Wealth Management uses one tax reserve savings account for all agencies, because one balance matched against four due dates is easier to inspect than several small agency pots.
Hypothetical: Miriam, 58, is a divorced radiologist earning a $450,000 W-2 salary from her group. She takes weekend teleradiology reads as a trial run for part-time work and expects $60,000 of locums net income. Step one: $60,000 × 92.35 percent equals $55,410 of self-employment earnings. Step two: Social Security tax is $0 because her W-2 pay already exceeded the $184,500 wage base. Step three: Medicare tax at 2.9 percent is $1,607, and the 0.9 percent Additional Medicare Tax is $499. Step four: half of the $1,607 Medicare tax, or $803, is deductible. That leaves $59,197; at an assumed 35 percent marginal rate, income tax is $20,719. Her federal total is $22,825, about 38 percent of locums net, or $5,706 each quarter.
That $22,825 bill is roughly what one month of Miriam's group salary might net after tax. State income tax comes on top and differs by state. You can rerun these four steps with our site's calculator, but no tool knows whether a booked shift will be cancelled or a contract will change.
What does each account do with Miriam's locums income? The table shows the key boundary: her group 401(k) cannot accept locums pay. A Solo 401(k) or SEP-IRA tied to 1099 income may reduce taxable income; the separate Solo 401(k) article explains how plan limits stack. A retirement contribution can lower a tax bill, but investments can fall in value and you could receive back less than you put in.
Build the reserve from net income
Keep retirement accounts in their lanes
| Account | How it is taxed | What to do with it |
|---|---|---|
| Group W-2 salary | Withheld; Social Security maxed | Add W-4 extra if short |
| Locums 1099 checks | Income tax plus 3.8% Medicare | Move 38% to reserve |
| Tax reserve savings | Interest taxed as ordinary income | Pay $5,706 each due date |
| Group 401(k) | Pre-tax, W-2 pay only | Cannot take locums pay |
| Solo 401(k) or SEP-IRA | Deductible from 1099 net | Can lower $22,825 bill |
I can square it all up in April
That approach creates a timing problem because federal estimates are due April 15, June 15, September 15, and January 15, moving to the next business day when needed. Each quarter stands on its own; a large January payment does not erase an underpaid April.
Paying the whole year of locums tax with the January voucher is a timing error. If Miriam sends all $22,825 then, $17,118, or three quarters of $5,706, arrives about nine, seven, and four months late, roughly seven months on average. The IRS penalty works like interest on each late amount, so check the current IRS rate; many states add their own charge.
Overpaid estimates are reversible: they become a refund or roll forward to the next first-quarter payment. A Form W-4 change is also reversible at any paycheck. A penalty already accrued is usually not, unless uneven income means the IRS Form 2210 annualized-income method, Schedule AI, shows that earlier quarters legitimately owed less.
- April 15 federal estimate
- June 15 federal estimate
- September 15 federal estimate
- January 15 federal estimate
Travel and licensing for locums are all deductible
Only costs you pay yourself for the 1099 work can reduce locums net income. Common examples include a state license needed for the assignment, DEA registration, malpractice the agency does not cover, CME tied to that work, and the deductible half of self-employment tax.
Agency reimbursements are not your deduction. Travel generally counts only when work takes you away from your tax home overnight; driving from home to a reading room is commuting. Unreimbursed employee expenses from your W-2 job are not deductible on the federal return.
Physicians are a specified service business for the qualified business income deduction, which phases out at higher income. At Miriam's income, Assante Wealth Management would not build a tax reserve around receiving it. Check the current IRS threshold with your tax professional.
- Self-paid state medical licenses
- Uncovered malpractice premiums
- Work-related CME costs
- Half of self-employment tax
Can I skip quarterly vouchers and just raise my withholding?
Yes, extra W-2 withholding can replace quarterly vouchers and is especially useful after a midyear surprise, because the IRS counts it evenly through the year. Use vouchers when shifts are new or uneven, and hold money until April only when the reserve account will remain untouched.
We pick the route by how much control a physician wants. Direct Pay vouchers make you act on four fixed dates. Payroll withholding takes a smaller bite from each group paycheck. Holding cash until April under the safe harbor keeps the money longest, but Miriam would then write one check for close to $22,825.
Pick the route that matches the work
When the usual shortcut breaks
| Factor | Quarterly vouchers | Extra W-2 withholding | Safe harbor, then April |
|---|---|---|---|
| Penalty risk | Low when timely | Low; treated evenly | Low if target met |
| Cash flow | Four larger payments | Spread across paychecks | Cash held longest |
| If shifts stop | Stop next voucher | Payroll may lag | Reserve remains available |
| Late-year repair | Limited | Strong option | Does not repair shortfall |
| Effort | Track four dates | Change Form W-4 | Guard reserve account |
What you can do alone and what to bring to Assante Wealth Management
You can open the reserve account, log shifts, and pay vouchers on time with last year's return and a pay stub. A conversation with Assante Wealth Management is worth it when locums income changes a larger decision, such as cutting W-2 hours, opening a retirement plan for 1099 work, or filing in several states. We run the next year's safe-harbor number before you change your schedule.
A January payment cannot repair an April estimate that was already late.
Your questions about locum tenens taxes, answered
What happens if a locums agency never sends me a 1099-NEC?
You still report the locums income even if an agency does not send IRS Form 1099-NEC. Use your contract, shift log, bank deposits, and remittance statements to total gross pay, then subtract supported business expenses. Ask the agency for a corrected form, but do not wait for it before making an estimated payment or filing your return.
My mother picked up locums shifts after retiring and already collects Social Security; does she still owe self-employment tax?
Social Security benefits do not remove self-employment tax on net locums income. Her Social Security share depends on whether wages and self-employment earnings exceed the annual wage base, while Medicare tax generally continues. Benefits can also become partly taxable as other income rises, so she should reserve cash before accepting several extra shifts.
My group pays me on a W-2 and the agency wants me as a 1099 contractor; should I ask the agency for W-2 pay instead?
Ask the agency how it classifies the role and why, but do not assume W-2 status is available or automatically better. A 1099 arrangement creates estimated-tax and expense-record duties, while W-2 pay generally has withholding. Employment classification follows the working relationship, not simply the physician's tax preference.
Do I owe tax to the state where the locums hospital is, or only my home state?
A locums assignment can create a nonresident state return where the work is performed, while your home state may tax all income and offer a credit for tax paid elsewhere. States use different filing thresholds and estimate schedules. Keep the assignment location and dates in your shift log, especially when working in more than one state.
Sources and further reading
This is general information, not advice tailored to your finances or circumstances. Investing involves risk, including the possible loss of principal. Before making any decision about money, taxes or your practice, talk with a professional who knows your full situation.