Should I run my locums income through an S corporation as an established anesthesiologist?
By Ryan Inman
Published · Updated
The short answer
Only when the locums income is large, sustained, and actually yours to structure, because at modest contractor income the S corporation's one real saving is mostly spent buying itself. Work the bank's numbers on $150,000 of net locums income, labeled illustrative. As a sole proprietor you pay self employment tax at 15.3 percent on 92.35 percent of net earnings: $150,000 times 0.9235 is $138,525, and the tax is about $21,194, half of it deductible.
Run the same income through a professional corporation taxed as an S corporation, paying yourself a $100,000 salary, and payroll tax applies to the salary only: 15.3 percent of $100,000 is $15,300, while the remaining $50,000 comes out as distributions with no payroll tax on it. The gross saving is about $5,900 a year. That assumes the locums income is your only earned income: if W-2 wages already pass the Social Security wage base, $184,500 for 2026, the sole proprietor side owes only the Medicare portion on the locums income, and the corporation's payroll usually costs more than it saves. Now the offsets, because they are the answer. The corporation's employer retirement contribution is 25 percent of your salary, $25,000, plus your $24,500 employee deferral, for $49,500 of solo 401(k) room. The sole proprietor contributes 20 percent of net self employment earnings on top of the same deferral, roughly $27,900 at this income, for roughly $52,400 of room. The salary that saves the payroll tax costs about $2,900 of retirement room in this example. Then come the real costs of being a corporation: payroll processing, a separate return, state franchise taxes and fees, and the accounting to keep it all defensible. The bank's 1099 page prices the payroll processing and CPA work at $2,000 to $4,000 a year. At $150,000 of locums income those costs and offsets consume most of the $5,900. At two or three times that income, sustained over years, the same arithmetic starts to leave real money standing.
Part of the anesthesiology hub.
The entity is a professional corporation, not an LLC
This is a line physicians get wrong often, because the internet's default small business advice does not know what you do for a living. Income from your own medical practice is professional income, and most states require it to run through a professional entity: a professional corporation, a professional LLC where the state allows one for physicians, or a professional association, depending on the state. California bars LLCs from professional medical services outright. Forming an ordinary LLC and electing S corporation status on top of it does not cure practicing medicine through the wrong entity. The structure that fits this specialty is a professional corporation with an S election, formed in your state of practice, with your own CPA and a health care attorney confirming the form before the first locums check arrives. Locums agencies also have a say: some engage only individual contractors, some only entities, and some pay a different rate by structure, which belongs in the comparison before anything is filed.
What the S election does not change
Everything else on the contractor ledger stays put. The malpractice premium, $20,000 to $35,000 a year in anesthesia as your own bill, plus tail at exit, is the same cost inside or outside the corporation. Quarterly estimated taxes are still due four times a year. The solo 401(k) exists on both sides of the comparison, with the same $72,000 total limit for 2026. Only the employer side's base changes, salary against net self employment earnings. Disability coverage is still yours to buy, and at established income the group gap work on this site has already priced what happens when it is skipped. And the reserve rule does not move: contractor income is sporadic income, and the waterfall's endpoint for it is up to twelve months of expenses, whichever entity's name is on the account. The established bank's locums bridge question runs the decision to do locums at all on the same fully loaded logic: the premium over W-2 hourly rates is real, the 25 to 30 percent benefits load is real, and the entity election is a refinement on a decision that has to win before it is refined.
One timing rule governs the whole question. Structure is chosen before the income is earned, not at tax time: an S election has filing deadlines, a corporation formed in November does not reach back to January's checks, and payroll has to actually run, with a salary that is reasonable for the work, documented like the IRS will read it, because it may. If the locums year is a one year bridge into retirement, the bridge is usually crossed as a sole proprietor. If locums is becoming the second half of a career, with income at a level where the payroll saving clears the administration by a wide margin year after year, that is when the professional corporation earns its keep.
The main points
- On $150,000 of locums income, the S corporation saves about $5,900 of payroll tax, then gives back roughly $2,900 in retirement room and pays real administration costs. At this scale it is close to a wash.
- The saving scales with income and with years. Sustained locums at two to three times that level is where the structure starts to pay for itself.
- The entity is a professional corporation with an S election, not an ordinary LLC: most states route medical practice through professional entities, and California bars LLCs from it outright.
- Malpractice, tail, quarterly estimates, and the twelve month contractor reserve do not change with the entity. Structure is chosen before the income is earned.
Related questions
How much locums income makes the S corporation worth it?
There is no universal line, but the example prices the slope: about $5,900 of gross payroll saving on $150,000 of income, shrinking against roughly $2,900 of reduced retirement room and the real annual cost of payroll, a corporate return, and state fees. Run your own figure. When the saving clears the full cost list by a wide margin for several expected years, the answer turns yes.
Can I put my W-2 hospital income through the corporation too?
No. Your employer's income is paid to you as an individual employee and cannot be rerouted through your entity. The corporation only holds income from work that contracts with the entity: locums and independent contractor engagements that agree to engage it.
What salary should the corporation pay me?
A reasonable one for the work, which is a defensible market salary for the anesthesia hours the corporation bills, not the smallest number that survives arithmetic. The salary sets both your payroll tax and your retirement contribution base, and an unreasonably low salary is the fact pattern the IRS audits in professional S corporations.
Sources
- Internal Revenue Service, S Corporations (shareholder employees must pay themselves reasonable compensation subject to employment taxes before distributions, accessed October 2026)
- Internal Revenue Service, Self Employment Tax (the 15.3 percent rate applies to 92.35 percent of net self employment earnings, with half deductible, accessed October 2026)
- Internal Revenue Service, 401(k) contribution limits for 2026 (elective deferral of $24,500 and total annual additions limit of $72,000, employer contributions of 25 percent of compensation for corporations and 20 percent of net self employment earnings for the self employed, as cited in this site's anesthesia bank, accessed October 2026)