Setting Up Your Locum Tenens Business: Sole Prop, LLC, or S-Corp

No. You do not need to form anything to work locum tenens. The moment you accept 1099 independent-contractor work, the IRS already treats you as a sole proprietor — there is no filing, no fee, and no entity to create. You simply report income and expenses on Schedule C of your Form 1040 and pay self-employment tax on the net.

An LLC, a PLLC, or an S-corp election is always optional for a solo locum. The right question is not "which entity must I form?" but "does forming one buy me anything worth the cost and paperwork?" For most clinicians the honest answer at the start is: not yet.

Three truths that frame the whole decision, and that the rest of this guide unpacks:

1. A single-member LLC by itself produces zero federal tax savings — the IRS taxes it identically to a sole proprietorship. 2. An LLC does not protect you from your own malpractice — only insurance does that. 3. The only structure that changes the tax math is an S-corp election, and only above a meaningful income level after its costs.

This is a pillar overview — it orients you to the landscape and then points you to the deep guides on forming an LLC and electing S-corp for the mechanics.

Because the IRS does not see a single-member LLC as a separate taxpayer. A single-owner LLC is a "disregarded entity" — by default the IRS looks straight through it to you. As the IRS puts it, "an individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship."

That means everything is identical to being a sole prop:

- You still file the same Schedule C with your 1040. - You still pay the full 15.3% self-employment tax — 12.4% Social Security plus 2.9% Medicare — on 92.35% of your net earnings. - You still take the same deductions and the same above-the-line half-of-SE-tax deduction.

Forming the LLC changes none of that arithmetic. The tax savings clinicians associate with "having an LLC" actually come from a separate, optional step layered on top of the LLC: the S-corp election (a tax classification), which is covered below and in the electing S-corp deep guide.

So why form an LLC at all? For non-tax reasons: separating business liabilities (vendor debts, employment claims) from personal assets, presenting a more professional face to agencies, and keeping clean books with a dedicated EIN & bank account. Important caveat — many states require licensed clinicians to use a PLLC or professional corporation rather than an ordinary LLC, and recognition rules vary by state, so confirm your state's rule before filing.

No. This is the single most expensive myth in locum tenens entity planning. Limited liability protects against business liabilities — unpaid vendor invoices, an office lease, an employment claim, a co-owner's negligence. It does not protect you from your own professional negligence. If you personally provide negligent care, you are personally liable no matter what entity name is on your contract.

What actually protects you is malpractice insurance with appropriate tail coverage, not a business structure. An LLC or PLLC is a banking-and-business-liability tool, not a clinical-liability shield. Confirm your coverage details and the gap an entity leaves in our guide to malpractice and tail coverage.

A second state-specific wrinkle: because clinicians are licensed professionals, most states channel them into a PLLC or professional corporation, and some require it. The protection a PLLC offers against your *partners'* malpractice and against *business* creditors is real; the protection against your own clinical acts is zero. Have a healthcare attorney in your practice state confirm the right entity type and what it does and does not cover.

An S-corp is the only one of these structures that can lower your tax bill — and it does so by changing how your income is taxed, not by existing. After you have an LLC (or corporation), you file Form 2553 to elect S-corp tax treatment. As an S-corp, you become a shareholder-employee: you pay yourself a salary subject to FICA payroll tax, and remaining profit can be taken as distributions that are not subject to the 15.3% self-employment/FICA tax. That FICA-free slice of distributions is the entire savings mechanism.

The catch is that the savings only show up above a meaningful income level, because an S-corp carries real, recurring overhead:

- A payroll service to run W-2 wages and remit payroll taxes. - A separate Form 1120-S corporate return each year. - State franchise/entity fees and more involved bookkeeping.

Below roughly $150k–$200k of net profit, those costs often eat the FICA savings — but this is a fact-and-circumstances rule of thumb, not a guarantee, so run the numbers with a CPA. Note the half-of-SE-tax deduction and the $184,500 Social Security cap already soften the sole-prop "penalty," which is why the break-even sits higher than the headline 15.3% suggests — above the $184,500 cap, the FICA-free slice of distributions only saves the 2.9% Medicare (plus the 0.9% Additional Medicare where it applies), not the full 15.3%.

Three non-negotiables before electing:

1. Reasonable salary is mandatory. The IRS requires shareholder-employees to be paid reasonable compensation for services before non-wage distributions, and it can reclassify distributions as wages where salary is unreasonably low. A too-low salary to dodge payroll tax is a top audit trigger — see electing S-corp. 2. Form 2553 timing. The election is generally due within 2 months and 15 days of the start of the tax year; late-election relief is available within 3 years and 75 days under Rev. Proc. 2013-30. 3. It reshapes your retirement room. Solo-401(k)/SEP contributions for an S-corp owner are based on W-2 wages, not total profit — so an artificially low salary also shrinks how much you can stash. And under SECURE 2.0, beginning in 2026 catch-up contributions must be Roth if your prior-year (2025) FICA wages exceeded $150,000. A SEP-IRA can also create pro-rata complications for a backdoor Roth, so weigh the plan type with your CPA.

Usually not for high earners — and this surprises people. The qualified business income (QBI) deduction under §199A can knock 20% off pass-through business income, but physicians, CRNAs, and AAs fall under "Health", which the IRS classifies as a Specified Service Trade or Business (SSTB). For an SSTB, the deduction phases out completely once taxable income clears the upper threshold.

For the 2026 tax year (Rev. Proc. 2025-32), the QBI threshold is $201,750 single / $403,500 MFJ, and the SSTB deduction fully phases out at $276,750 single / $553,500 MFJ. Above those numbers, a full-time clinician's QBI deduction is $0 — whether they operate as a sole proprietor, an LLC, or an S-corp.

That single fact neutralizes two common arguments at once:

- It defeats the "sole props get an automatic 20% off" pitch for high earners — they generally do not. - It defeats the "an S-corp hurts my QBI deduction" worry for the same earners — there is usually no QBI deduction to hurt.

So for the typical full-time locum above the phase-out, QBI is a non-lever and the entity decision turns on FICA savings, liability separation, and overhead — not on §199A. If your taxable income sits below the threshold (part-time, partial-year, or large deductions), QBI can matter, and the analysis gets more involved — bring it to your CPA.

One more 2026 wrinkle to head off confusion: the One Big Beautiful Bill Act added a $400 minimum QBI deduction (where QBI is at least $1,000 and you materially participate) and widened the phase-in range. That minimum helps owners of *qualified* trades or businesses above the limits — but not an SSTB whose income is entirely from healthcare, because SSTB income is fully excluded above the ceiling. So a full-time locum clinician above the phase-out still lands at $0.

And for search-time research: many web results still surface the stale 2025 numbers ($197,300 / $394,600 threshold; $247,300 / $494,600 phase-out). Use the 2026 figures above.

Start simple and earn your way into complexity. Most clinicians begin as a sole proprietor, add an LLC/PLLC when liability separation and clean banking matter, and elect S-corp only once profit is consistently high enough to beat the overhead. Here is the short version of when each fits:

- Sole proprietor — you are brand-new to locums, part-time, have low or variable income, or just want zero overhead. The default and the right place for most people to start. You can still deduct CME, licensing, travel, mileage (72.5¢/mile business rate in 2026), and a home office — you do not need an entity to claim overhead deductions. - Single-member LLC (PLLC where your state requires) — you want business-liability separation, a clean business bank account, and a professional appearance. Just go in clear-eyed: it gives no tax break and no malpractice shield. - LLC + S-corp election — your net 1099 profit is consistently high (commonly cited around $150k–$200k+), you are willing to run real payroll and pay a defensible reasonable salary, and the FICA savings on distributions clearly exceed the added payroll and 1120-S costs.

Two practical setup notes that apply at every stage: get an EIN so your SSN never lands on a W-9, and open a dedicated business account — see EIN & bank account. An EIN is optional federally for a sole prop with no employees, but it is required once you run S-corp payroll. And whatever you choose, the entity is a tax-and-liability tool, not a substitute for malpractice insurance.

The figures here are deliberately summarized. For the step-by-step mechanics, run the numbers in the deep guides on forming an LLC and electing S-corp, and confirm anything state-specific or dollar-specific with a CPA and a healthcare attorney in your practice state.