Locum Tenens Physician Tax Deductions (2026): The Complete Schedule C Guide

Published: September 5, 2026 · Reading time: 11 min

TL;DR: Locum tenens physicians file Schedule C on 1099 income from staffing agencies and directly-contracted hospitals, with a deduction profile distinct from any other profession on this site: state license and DEA renewal fees (Line 23), hospital credentialing and board MOC fees (Line 27a), malpractice insurance including the genuinely unsettled question of tail coverage (Line 15), and travel/lodging governed by the one-year temporary-vs-indefinite rule (IRC §162(a)(2), Rev. Rul. 93-86) that tracks cumulative time at a single location, not per-contract. A staffing agency's flat per diem is taxable income, not a tax-free reimbursement the way it would be for a W-2 employee — you report it, then separately deduct your actual costs. And because Treas. Reg. §1.199A-5(b)(2)(ii) names physicians as a "health" SSTB, the §199A QBI deduction phases out between $201,750–$276,750 (single/HOH) or $403,500–$553,500 (MFJ) for 2026 — a range a lot of full-time locum physicians sit inside or above.

Locum tenens work — filling in for permanent physicians on a temporary, contract basis — is one of medicine's largest 1099 populations, and its tax profile looks nothing like a hospital-employed physician's W-2 return. Nearly everything runs through Schedule C, including some traps that are specific to working a string of short-term contracts instead of one steady job.

Mapping the Recurring Costs to Schedule C

The One-Year Rule: Why a String of Contracts Isn't the Same as One Long Assignment

IRC §162(a)(2) allows a deduction for travel expenses "while away from home" — but only if your tax home stays at your permanent residence. Rev. Rul. 93-86 and the "one-year rule" that follows it draw the line: an assignment you realistically expect (and that turns out) to last one year or less is "temporary," and your tax home doesn't move — travel, lodging, and 50%-of-meals to the assignment location are deductible. An assignment realistically expected to last more than one year — or one where your expectation changes partway through — is "indefinite," and your tax home shifts to that location as of the point your expectation changed. From that point on, travel between your old residence and the assignment site is nondeductible commuting, not business travel.

The trap for locum tenens specifically: the clock is cumulative at a single location, not reset by each new contract. Two consecutive four-month contracts at the same hospital, followed by a six-month renewal, add up to fourteen months at one location — crossing the one-year mark even though no single contract exceeded a year on its own. The deduction doesn't just stop being available going forward from month thirteen; it stops as of whenever your realistic expectation changed (for example, the day you signed the renewal that pushed the total past a year), which can require going back and correcting an earlier assumption. Switching agencies while staying at the same hospital doesn't restart the clock — the test looks at the location, not the contracting relationship.

Per Diems Are Income First, Deduction Second

A W-2 hospitalist's employer-paid travel reimbursement is tax-free under an accountable plan, as long as it's tied to substantiated actual expenses. A 1099 locum physician doesn't automatically get that treatment. If a staffing agency pays a flat per diem or lump stipend with no requirement to substantiate actual costs, that entire amount is includible in your gross income — typically folded into Box 1 of your 1099-NEC — and you then claim your own, separately substantiated deduction for actual lodging and meals.

Worked example: An agency pays Dr. Osei a flat $200/day travel stipend for a 60-day rural assignment — $12,000 total, no receipts required by the agency. Her actual costs for the assignment: $7,000 in lodging and $2,500 in meals.

The $12,000 stipend isn't a wash. Between the 50% meals haircut and whatever gap exists between the flat per diem and her actual costs, $3,750 of it becomes real taxable profit — money a W-2 hospitalist receiving the identical dollar amount as an accountable-plan reimbursement would never have to report at all.

Malpractice Tail Coverage: An Honest "It Depends"

Ongoing malpractice premiums during an active assignment are an uncomplicated Line 15 deduction. Tail coverage — a single premium purchased at the end of an assignment or policy period, covering claims that surface later for care you already provided — is murkier. The prevailing practitioner view treats it as a currently deductible ordinary business expense, since it's a one-time, non-renewable purchase rather than a multi-year policy paid in advance. But Treas. Reg. §1.263(a)-4's 12-month rule requires capitalizing payments that create a benefit reaching substantially beyond the current year — and a tail policy's entire function is covering risk that can materialize years later, which is exactly the kind of "future benefit" language that rule is built around. No IRS ruling squarely resolves this for medical tail coverage. Deduct it in the year paid if that's the position you and your CPA are comfortable defending, but don't treat it as settled the way the rest of this list is.

QBI: The SSTB Line Most Locum Physicians Actually Cross

Treas. Reg. §1.199A-5(b)(2)(ii) names physicians directly inside the "health" specified service trade or business (SSTB) category — anyone providing medical services directly to a patient. That label costs nothing below the 2026 QBI threshold: $201,750 single/HOH or $403,500 MFJ (Rev. Proc. 2025-32), every business gets the full 20% deduction regardless of SSTB status. Above the threshold, the deduction phases out across a $75,000 range (single/HOH) or $150,000 range (MFJ), reaching zero once taxable income clears $276,750 single/HOH or $553,500 MFJ. Unlike most professions covered on this site, a full-time locum physician's earnings routinely land inside or above that range.

Three tiers, worked from scratch (single filer, no W-2 wages paid and no UBIA — a solo locum physician with no employees and no depreciable business property, which makes the wage/UBIA limit $0 rather than irrelevant):

Below the threshold. Taxable income $150,000; qualified business income (QBI) $140,000. SSTB status is irrelevant below $201,750 — full 20% deduction: 20% × $140,000 = $28,000. Both $150,000 and the post-deduction $122,000 sit inside the 24% bracket, so the deduction is worth 24% × $28,000 = $6,720 in federal income tax saved.

Inside the phase-in range. Taxable income $230,000; QBI $210,000. This tier is where the SSTB math genuinely bites, and it runs in two layers, not one. First, an "applicable percentage" scales down QBI itself: 1 − (($230,000 − $201,750) / $75,000) = 1 − 0.376667 = 62.3333%, reduced QBI = $210,000 × 62.3333% = $130,900, giving a tentative deduction of 20% × $130,900 = $26,180. Second, because a solo physician with no employees has $0 of W-2 wages, the wage/UBIA limit on that same reduced base is also $0 — and the phase-in formula (Treas. Reg. §1.199A-1(d)(2)(iv)) subtracts a further "reduction amount" equal to the gap between the tentative deduction and the wage limit, multiplied by how much of the range has been used up (37.6667%): reduction = ($26,180 − $0) × 0.376667 = $9,861.13. Final deduction: $26,180 − $9,861.13 = $16,318.87 — nearly $10,000 less than stopping at the first layer alone. Both $230,000 and the post-deduction $213,681.13 sit inside the 32% bracket, so the deduction is worth 32% × $16,318.87 = $5,222.04.

Above the ceiling. Taxable income $300,000 — above the $276,750 single ceiling. The QBI deduction on this SSTB income is $0, full stop, regardless of how large qualified business income is.

A physician with actual W-2 staff (a practice manager, a scheduler) would see a smaller reduction in the middle tier, since a nonzero wage base raises the wage limit that gets subtracted from. A solo locum physician with no employees gets the harshest version of this math — one more reason the QBI phase-out costs medicine more than most professions on this site.

Worker Classification: The Same Three-Category Test, in a Three-Party Setting

Locum tenens arrangements — a staffing agency, a hospital, and the physician — are a classic setting for worker-classification disputes, and the IRS applies the same three-category common-law test (behavioral control, financial control, and type of relationship) used everywhere else, which grew out of the older 20-factor framework from Rev. Rul. 87-41. A physician who sets their own schedule within the assignment, uses their own clinical judgment on how care is delivered, and works multiple assignments for multiple agencies looks like a contractor under that test; one who's told exactly how to practice, is the hospital's only source of coverage, and receives ongoing benefits looks more like an employee regardless of what the contract calls the relationship.

Equipment: Section 179 Still Applies

A locum physician who buys portable diagnostic equipment (a personal ultrasound unit, a diagnostic bag's contents) can generally expense it in full under Section 179 rather than depreciating it over several years. The 2026 maximum Section 179 deduction is $2,560,000, with the phase-out beginning at $4,090,000 of total qualifying property placed in service (Rev. Proc. 2025-32) — figures far above what nearly any solo locum practice will spend in a year, so the deduction is rarely capped in practice.

Authoritative References

• Cornell LII — 26 CFR §1.199A-5: Specified service trades or businesses
• Cornell LII — 26 U.S. Code §162: Trade or business expenses
• Cornell LII — 26 CFR §1.263(a)-4: Capitalization of amounts paid to acquire or create intangibles
• IRS Publication 463 — Travel, Gift, and Car Expenses
• IRS — Independent Contractor (Self-Employed) or Employee?

Related reading: 1099 vs. W-2 Worker Classification for Freelancers · 2026 IRS Mileage Rate · Self-Employment Tax Explained

Juggling per diems, credentialing fees, and mileage across three or four assignments a year? Start a free CentSense account and every receipt gets logged and categorized by assignment as it happens — so reconciling agency stipends against your actual costs isn't a scramble every April.

This guide is general education for U.S. freelancers and Schedule C filers in 2026. It is not personalized tax advice — bring your specific situation to a CPA or EA, especially on the tail-insurance capitalization question noted above.