1099 vs W-2 Locum Tenens: Which Should You Take?

There is no universally "better" choice — it depends on your total compensation structure, not the headline hourly rate. The vast majority of locum tenens assignments are 1099 (independent contractor), which is the model NALTO's Code of Ethics requires of its member agencies (members must contract and report locums as independent contractors). Some agency or MSP (managed service provider) arrangements offer W-2 locum roles instead.

The right way to frame the decision: a 1099 rate must be high enough to (1) cover the extra ~7.65% employer-side payroll tax you now self-fund, (2) replace the benefits, insurance, and PTO a W-2 would have provided, and (3) still leave you ahead. In exchange, 1099 unlocks Schedule C business deductions and far larger retirement contributions. W-2 hands you simplicity — withholding done for you, half of FICA paid by the employer, and unemployment/workers' comp coverage — but caps your deductions and retirement.

Because locum work is overwhelmingly 1099, the practical question for most clinicians is not "which exists" but "is this 1099 rate priced to beat a W-2 alternative once I account for self-funded taxes, benefits, deductions, and retirement?" That is a total-take-home calculation. Always confirm your worker classification in writing before signing, since misclassification is a real and costly risk (see below).

The honest answer: the *true* incremental tax cost of 1099 versus W-2 is roughly the ~7.65% employer-side payroll portion you now self-fund — partially clawed back by the half-SE-tax deduction — not a fresh 40-50% bite. The other 7.65% you would have paid as a W-2 employee anyway.

Here is the mechanics. A W-2 employee pays 7.65% FICA (6.2% Social Security + 1.45% Medicare) and the employer matches another 7.65% (IRS Topic 751). As a 1099 contractor you are both employer and employee, so you pay the full 15.3% self-employment (SE) tax (12.4% Social Security + 2.9% Medicare). But two large offsets defang that 15.3%:

1. SE tax is computed on only 92.35% of net Schedule C earnings, not gross or 100%, because Schedule SE first removes the deemed employer share of the base (IRS Self-Employment Tax page / Schedule SE). 2. The one-half-of-SE-tax deduction lets you deduct the employer-equivalent half above-the-line, reducing your AGI and income tax (though not the SE tax itself).

The widely repeated "15.3% on top of a 35% bracket = ~50% gone" framing is wrong for three compounding reasons: SE tax hits only 92.35% of earnings; the 12.4% Social Security slice stops at the $184,500 Social Security wage base for 2026 (above that, the marginal SE rate is just 2.9% Medicare, plus the 0.9% Additional Medicare Tax on earnings over $200,000 single / $250,000 MFJ); and Schedule C deductions plus the half-SE deduction shrink the taxable base before income tax applies. A full-time locum earning $350k pays the 12.4% Social Security portion on roughly half their income.

Below is the full side-by-side for the 2026 tax year. The short version: 1099 means higher complexity and self-funded benefits but bigger deductions and dramatically larger retirement room; W-2 means simplicity, employer-paid half-FICA, and unemployment/workers' comp coverage but a capped 401(k) and very limited deductions.

Note two items that surprise people. First, the QBI / Section 199A deduction is $0 for most full-time locums because clinical medicine is a Specified Service Trade or Business — it is not a 1099 tax lever (see the QBI section). Second, the 1099-NEC reporting threshold rose to $2,000 for 2026 (from $600) under the One Big Beautiful Bill Act (OBBBA) — but you owe tax on the income whether or not a form is issued.

Going 1099 unlocks two real, dollar-significant advantages: Schedule C business deductions and much larger retirement contributions.

On deductions, as a 1099 locum you can deduct ordinary and necessary business expenses on Schedule C: state licensing and DEA registration, malpractice and tail coverage not provided by the agency, CME, medical society dues, unreimbursed travel, a home office, business phone and equipment, professional services (CPA/attorney), and health insurance via the self-employed health insurance deduction (IRS Schedule C instructions / Pub 535). A W-2 employee gets almost none of this — unreimbursed employee expenses are largely non-deductible.

On retirement, the gap is large. For the 2026 tax year, a 1099 locum can open a SEP-IRA (up to 25% of net self-employment earnings, max $72,000) or a Solo 401(k) (up to $72,000; $80,000 with the age-50 catch-up; $83,250 in the age 60-63 enhanced catch-up window). A W-2 employee's elective deferral is capped at $24,500 (2026), plus an $8,000 catch-up at 50+ or $11,250 enhanced catch-up at ages 60-63 — and only if the agency even offers a plan.

One SECURE 2.0 nuance for the retirement comparison: for catch-up contributions in 2026, if your prior-year (2025) FICA wages exceeded $150,000, all catch-up contributions must be Roth (IRS final regulations; plans have good-faith transition relief into 2027). Pure 1099 income is not "FICA wages," so a clinician with no W-2 wages may not trip that threshold — confirm your facts with a CPA, especially if you have mixed W-2 and 1099 earnings.

Almost never if you work full-time — so do not treat QBI as a reason to choose 1099. Physicians, CRNAs, and AAs practicing clinical medicine are a Specified Service Trade or Business (SSTB) under Section 199A. Under OBBBA (signed July 2025), Section 199A is now permanent, but the SSTB deduction fully phases out above $276,750 single / $553,500 MFJ for 2026 — the phase-out begins at the 2026 threshold of $201,750 single / $403,500 MFJ and runs across the $75,000 (single) / $150,000 (MFJ) phase-in range (IRS Rev. Proc. 2025-32). Most full-time locums earn above the ceiling, which means a $0 QBI deduction.

This is the single most common 1099 myth in locum tax planning. The 20% QBI deduction sounds like a powerful contractor lever, but for high-earning clinicians it simply does not apply to clinical income. W-2 wages are not QBI either, so QBI is not a point of difference between the two arrangements for most locums. If your taxable income happens to fall below the phase-out threshold — for example a part-time or semi-retired clinician — a partial or full deduction may be available, but that is the exception, not the planning baseline. Treat any 1099-vs-W-2 comparison that leans on QBI savings with skepticism and confirm your specific numbers with a CPA.

A contract label alone does not settle it — worker classification is fact-based, not contract-label-based. The IRS applies the common-law control test across three categories: behavioral control (who directs how the work is done), financial control (how you are paid, who supplies tools, whether you can realize profit/loss), and the relationship of the parties (written contracts, benefits, permanency). A contract that calls you a "1099 contractor" does not make it so if the facts look like employment.

NALTO's Code of Ethics requires member agencies to contract and report locums as independent contractors, and the 1099 model is standard and legitimate for genuine locum work. But if either party disputes the classification, either can file IRS Form SS-8 for an official determination (which can take six-plus months). Misclassification creates back-tax and penalty exposure, and as a 1099 worker you also have no withholding — meaning you must make quarterly estimated tax payments (Form 1040-ES) to avoid underpayment penalties, and you generally have no unemployment or workers' comp coverage (IRS Topic 762; IRS independent-contractor page).

Practical step: confirm your classification in writing before you sign, and make sure the assignment's actual working conditions match the label. State-level rules on multi-state filing, PLLC/S-corp structuring, franchise tax, and non-compete enforceability also vary by state — get state-specific advice where you work.