Most doctors can read an EKG faster than they can read their own tax return. That’s not a knock on anyone. After all, there’s no room in medical school or residency for a course on marginal tax rates or the qualified business income deduction, so nobody teaches it.
But once you start earning a physician’s income, taxes have to stop being a once-a-year errand. For a lot of doctors, this one of the biggest expenses they manage over an entire career.
This isn’t meant to make you a tax expert but to give you enough of a working knowledge that you can ask better questions, spot the mistakes that cost doctors the most money, and know when it’s time to bring in a professional who understands money in medicine.
Why Physician Taxes Work Differently
A typical W-2 employee has one income source, one employer withholding taxes, and a fairly predictable return.
Physicians rarely fit that mold. Between hospital employment, locum tenens work, private practice ownership, moonlighting, speaking fees, and investment income, doctors typically manage three or four income streams at once, each taxed a little differently.
There’s also the compressed timeline. Most physicians spend their twenties and early thirties in residency and training programs earning modest income, then watch that income jump substantially the moment they finish a GME program and start practicing.
That jump pushes many doctors into the top federal income tax brackets almost overnight, with little time to adjust withholding or plan around it. For 2026, the top marginal rate of 37% applies to taxable income above $640,600 for single filers and $768,700 for married couples filing jointly, brackets plenty of newly attending physicians reach faster than they expect.
Where Your Income Comes From, and Why It Matters
How you’re paid changes how you’re taxed. It’s usually the first thing I look at with a new physician client, before we talk about a single deduction.
If you’re a hospital or practice employee, you receive a W-2 form, and your employer withholds federal income taxes, Social Security, and Medicare from each paycheck.
If you take on locum tenens assignments or consulting work instead, that income typically comes as a 1099, and nothing gets withheld at all.
You’re responsible for paying those taxes yourself, including self-employment tax, which covers your share of Social Security and Medicare and runs 15.3% on net self-employment earnings up to the Social Security wage base (around $184,500 for 2026), plus an additional 2.9% Medicare tax above that.
Physicians who are partners in a practice may also receive a Schedule K-1, reporting their share of business income separate from any W-2 wages.
It’s common for a single physician to have more than one of these in the same year, say a W-2 from a hospital job plus 1099 income from weekend locum shifts.
Each income source needs to be tracked separately. Doctors who don’t adjust their withholding or make estimated payments to cover the 1099 portion tend to owe a significant balance, plus penalties, when they file.
Independent contractor physicians and locum tenens doctors generally need to make quarterly estimated tax payments using Form 1040-ES, due in mid-April, June, September, and the following January. Miss these and the IRS charges underpayment penalties on top of the tax you already owe.
The Deductions Most Doctors Leave on the Table
Every filer chooses between the standard deduction and itemizing on Schedule A. For 2026, the standard deduction rises to $16,100 for single filers, $32,200 for married couples filing jointly, and $24,150 for heads of household. Whether itemizing makes sense for you depends on your mortgage interest, charitable giving, state and local taxes, and out-of-pocket medical expenses, and that last category is only deductible above 7.5% of your adjusted gross income, a threshold most working physicians don’t clear.
One deduction that makes a big difference is the qualified business income deduction, sometimes called the Section 199A deduction, which allows certain business owners to deduct up to 20% of their qualified business income.
The One Big Beautiful Bill Act made it permanent, but medicine falls under the “specified service trade or business” category, so the deduction phases out once taxable income crosses $201,775 for single filers or $403,500 for joint filers in 2026. That’s a threshold plenty of attending physicians and practice owners exceed. Your entity structure and income level end up deciding whether you get the full benefit, a partial one, or none at all, which is exactly why this deduction deserves a real conversation with your CPA rather than a guess.
Other deductions and credits physicians commonly overlook include:
- Student loan interest, if your income falls under the phase-out range
- Home office expenses, for physicians who do legitimate administrative or telehealth work from a dedicated space
- HSA contributions, which reduce taxable income dollar for dollar
- The Child Tax Credit, for those with qualifying dependents
- Section 179 expensing for qualifying equipment or a vehicle used for practice purposes
None of these are automatic. They require accurate recordkeeping throughout the year.
Retirement Accounts: The Most Powerful Tool You Have
For most physicians, retirement contributions are the single biggest lever for reducing current-year taxable income while building long-term wealth. I tell almost every client this, and the limits went up again for 2026.
Employees can contribute up to $24,500 to a 401(k), 403(b), or similar workplace plan, with an additional $8,000 catch-up contribution once you turn 50, or a larger $11,250 “super catch-up” for physicians aged 60 to 63. Those who are self-employed or run their own practice can use a SEP-IRA instead, with contributions up to $72,000 for 2026, or a solo 401(k) that combines both employee and employer contributions.
Traditional and Roth IRA limits rose to $7,500, with a $1,100 catch-up for those 50 and older. Many physicians earn too much to contribute directly to a Roth IRA, though: the 2026 phase-out range is $153,000 to $168,000 for single filers and $242,000 to $252,000 for joint filers, which is why a backdoor Roth IRA conversion strategy is worth discussing with your accountant.
Health Savings Accounts deserve attention too, with 2026 limits of $4,400 for individual coverage and $8,750 for family coverage, plus a $1,000 catch-up starting at age 55. The funds grow tax-free and can be withdrawn tax-free for qualified medical expenses.
OBBBA Provisions Physicians Should Plan Around Before Year-End
The One Big Beautiful Bill Act reshaped several provisions that are already in effect for 2026, and with the year half over, now is a good time to check whether they apply to you before you’re sitting down to file next spring.
The state and local tax (SALT) deduction cap rose from $10,000 to $40,000 in 2025 and increases slightly to $40,400 for 2026. That’s a meaningful change for physicians in high-tax states who itemize. The benefit does phase down for taxpayers with modified adjusted gross income above $500,000, tapering back toward the old $10,000 floor for very high earners.
Physicians who are still practicing part-time past age 65 should also know about the $6,000 “senior deduction” (up to $12,000 for a married couple where both spouses qualify), available for tax years 2025 through 2028. The benefit phases out for single filers with MAGI above $75,000 and joint filers above $150,000, so it applies mostly to physicians who have scaled back their income in later career rather than those still working full-time.
Mistakes That Cost Physicians the Most
The most expensive tax mistakes I see doctors make usually aren’t about missing an obscure deduction. They’re structural.
Underpaying quarterly estimated taxes on 1099 or locum income shows up constantly, along with a failure to adjust W-4 withholding after a major income jump, like finishing residency or making partner. Physicians who work across state lines through locum assignments sometimes owe tax in multiple states and don’t find out until a notice arrives from a state Department of Revenue.
Entity structure is another problem. A physician running a practice as a sole proprietor may pay more in self-employment tax than one who has elected S corporation status, depending on income level, and that decision doesn’t fit a template. This is something that should be reviewed with an accountant.
And plenty of physicians simply do their own taxes with software built for straightforward W-2 filers, missing deductions and credits that apply specifically to their income mix. Filing taxes accurately isn’t really about finding loopholes but making sure you’re not overpaying the Internal Revenue Service because.
Tax planning works best as an ongoing conversation, not a once-a-year filing exercise. What makes sense during residency, when income is modest and every deduction counts, looks very different once you’re an attending with practice ownership, multiple income sources, and decisions to make about retirement accounts, entity structure, and eventually estate and wills planning.
A long-term strategy means revisiting things annually, since contribution limits change, tax laws change, and your income and career stage change right along with them.
The Bottom Line
None of this requires becoming a tax expert yourself. What it does take is a clear picture of your income structure, the deductions and retirement accounts you’re using, and having a professional in your corner who understands physician finances specifically.
If you’d like a clearer picture of where you stand heading into 2026, my team works with physicians, residents, locum tenens doctors, and mental health professionals on exactly these questions. Find out how we can help you.