The Refund, Then the Bill

Part of The Money the Job Makes. The first tax year after training usually ends in a refund, which feels like confirmation that everything is fine. The year after that is where the money actually goes. The two Aprils look nothing alike, and the reason is arithmetic rather than anything you did wrong.

The short version

Your first partial year as an attending often over-withholds. Payroll treats each paycheck as though you earned at that rate all year, and for the half-year you didn't, that means too much tax came out. A refund arrives and it means very little.

The first full year is the real one. Same salary, twelve months of it, and the withholding is now roughly correct rather than generous.

The shortfalls that produce five-figure April bills come from three specific places, and none of them is your salary: bonuses withheld at a flat 22%, a second income the W-4 doesn't know about, and any 1099 work.

The safe harbor protects you from the penalty, not from the bill.

What withholding actually does when you start

Payroll withholding works by annualizing. Each paycheck is taxed as though you earned at that rate for the whole year, and the tables then apply the brackets to that projected annual figure.

So if you finish residency in June on $67,000 and start in July on $300,000, every attending paycheck is withheld as though your annual income were $300,000. It isn't. For that calendar year it's closer to $183,000, half at each rate.

The result is that too much came out. In April you get money back.

That refund is an artifact of starting mid-year rather than evidence of anything, and it will not repeat.

Where the actual shortfall comes from

Three sources, and they compound.

Bonuses and anything called supplemental wages. A signing bonus, a relocation payment, a quarterly incentive, back pay. The IRS lets an employer withhold these at a flat 22% federal rate, and most do because it's simple.1 If your marginal rate is 32% or 35%, then every bonus dollar is under-withheld by ten to thirteen cents. A $40,000 signing bonus withheld at 22% against a 35% marginal rate leaves roughly $5,200 of federal tax unpaid, sitting quietly until April.

A second W-2 in the household. The W-4 assumes, by default, that the job it's attached to is the only one. Two earners each filing a default W-4 are each withholding as though the other didn't exist, so both are withholding at the rate their own income alone would imply, while the household is taxed on the sum. This is the most common cause of a surprise for a married new attending, and it's fixed by one box on the form.

Any 1099 work at all. Moonlighting, locum shifts, expert review, a stipend for a lecture. Nothing is withheld from a 1099 payment, and the self-employment tax on it is 15.3% on top of income tax.2 Two Offers, Same Number, Different Jobs is the fuller version. A moonlighting year quietly creates a tax obligation nobody is collecting for you.

The safe harbor, and the sentence people misread

There's a rule that stops the IRS from penalizing you for under-withholding, and new attendings meet it almost automatically, which is exactly why it's dangerous.

You avoid the underpayment penalty if your withholding and estimated payments over the year come to at least 90% of this year's tax, or 100% of last year's tax, whichever is smaller. If last year's adjusted gross income was over $150,000, that second figure becomes 110%.3

Now put a new attending in it. Last year you were a resident. Your total federal tax for a $67,000 year might have been $6,000 or $7,000, and your AGI was well under $150,000, so the threshold is 100% rather than 110%. Withhold that much across your first attending year and you have satisfied the safe harbor completely.

You will also owe the difference between $7,000 and your actual attending-year tax bill, in one payment, on the fifteenth of April.

The safe harbor is a rule about penalties. It has never been a rule about how much you owe. A physician who reads "no penalty" as "nothing outstanding" is the person this page is written for.

Two other things move in the same year

Your student loan payment recalculates on a lag. Income-driven repayment uses your most recently filed return, so your first attending-year payment is often still based on a resident's income. It's not a discount; it's a delay, and the recalculation lands the same year the tax bill does. The Personal Finance Crash Course works through what the payment becomes.

You may have changed states. State income tax rates differ by more than ten points, some states have none at all, and a mid-year move means part-year returns in two of them. That is the year to pay someone rather than to learn a new form.

What to do, in order

Fix the W-4 in your first week, not your first April. If you're married and both of you work, use the section of the form that accounts for it. If you have income the form can't see, use the extra-withholding line to add a fixed dollar amount per paycheck. That line exists exactly for this.

Run a projection once, in your first full year. Take the salary, add the bonus, add anything 1099, and calculate the actual tax against what payroll will withhold. The gap is the number you need. A CPA will do this in an hour and it's the cheapest hour of the year.

Open a separate account and put the gap in it, per paycheck. Not a mental note. A separate account with the money physically in it, funded on the same day you're paid. A tax bill you have already set aside for is an administrative event. The same bill without the account is a crisis.

If you have 1099 income, make quarterly estimated payments. They're due in April, June, September, and January, and waiting until the filing deadline adds a penalty on top of the tax.3

Take the retirement contribution seriously in the same conversation. Money into a pre-tax 403(b) or 401(k) reduces the income being taxed. It's the one lever that lowers the bill and keeps the money.

The part that's specific to us

If you're the first person in your family to earn this kind of income, you're also the first to face this kind of tax bill, and there's nobody at home to say "put a third of it aside."

Two habits are worth borrowing from people who grew up around it.

Think in take-home, never in salary. A Resident's Paycheck makes this point for training and it matters more, not less, when the number gets big. A $300,000 salary in a taxed state with a loan payment is not $25,000 a month to spend, and the distance between those two figures is where most first-year plans break.

Hire the accountant before you need one. It's a few hundred dollars against a five-figure exposure, and the reflex that says an accountant is for people with real money is the reflex worth overriding. You now have real money. That's what makes this urgent.

The raise is not a windfall. It's the first year of paying for the decade you just finished, and a lot of it is already committed before you see it.

What this page cannot tell you

It cannot tell you your bracket, your state's rules, or the right withholding for your household, because those depend on facts about you. It can't give you current bracket thresholds, since those move annually and this page is reviewed once a year. And it's not tax advice.

What belongs to other pages

What the salary is before any of this happens is What Doctors Actually Make. Whether the offer is W-2 or 1099, which changes every number here, is Two Offers, Same Number, Different Jobs. The clauses in the contract that cost the most is Reading a First Contract. What the loan payment becomes once your income is recalculated is The Personal Finance Crash Course.

Five things the first year gets wrong by default

  1. Read your W-4 in your first week, and use the multiple-jobs section if it applies.
  2. Treat the first refund as noise. It's an artifact of starting mid-year.
  3. Ask how your bonus will be withheld. If the answer is the flat supplemental rate, you are under-withheld on it by the difference between 22% and your marginal rate.
  4. Open the tax account and fund it every payday, before anything else moves.
  5. Hire an accountant for the first full year, and for any year you have 1099 income.

References

Tax rates, brackets, withholding conventions, and estimated-payment thresholds change annually, and state rules differ enormously. Nothing here is tax advice, and no page substitutes for a professional who has seen your actual return. This is educational information. Last reviewed: 2026-08-02

Footnotes

  1. The IRS permits employers to withhold federal income tax on supplemental wages, which include bonuses, commissions, overtime, back pay, and severance, at a flat rate of 22% on amounts up to $1 million in a calendar year, with a mandatory 37% on the portion above $1 million. The 22% is a withholding convention, not the tax rate that will ultimately apply to that income. Internal Revenue Service, Publication 15 (Circular E), Employer's Tax Guide: https://www.irs.gov/publications/p15 ↩

  2. Self-employment tax is 15.3% on net earnings from self-employment, comprising 12.4% Social Security up to the annual wage base and 2.9% Medicare with no ceiling, and no tax is withheld from a payment reported on a 1099. Internal Revenue Service, self-employment tax: https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes ↩

  3. The underpayment penalty is avoided where withholding and estimated payments total at least 90% of the current year's tax or 100% of the prior year's tax, whichever is smaller, or where less than $1,000 is owed after withholding and refundable credits. Where the prior year's adjusted gross income exceeded $150,000, the prior-year figure becomes 110%. Estimated payments are due in April, June, September, and January. Internal Revenue Service, Topic 306, Penalty for underpayment of estimated tax: https://www.irs.gov/taxtopics/tc306 · Form 1040-ES: https://www.irs.gov/pub/irs-pdf/f1040es.pdf ↩ ↩2