Two Offers, Same Number, Different Jobs

Part of The Money the Job Makes. One of the first real decisions after training is whether you're an employee or a contractor, and it usually arrives disguised as a bigger number. The gap between the two is wider than most people's entire negotiating range, and for anyone counting on loan forgiveness it decides whether the plan still works.

The short version

A W-2 number and a 1099 number aren't the same unit. The W-2 figure has already had half the payroll tax paid for you and arrives with benefits attached. The 1099 figure is the whole pot, and everything comes out of it afterwards.

The working rule is 15% to 20%. A contract rate has to clear a salary by roughly that much before you've broken even, and that's before you've priced the things you'll now buy yourself.1

1099 has real advantages, and they are money rather than lifestyle. The tax-deferred ceiling is $72,000 against an employee's $24,500 deferral, and the costs of practicing medicine come off a contractor's income at their top marginal rate while a W-2 physician pays for the identical things with money that has already been taxed.

And one item that is not a trade-off at all: a 1099 physician generally cannot earn PSLF.

Everything the employer was absorbing is now yours

A W-2 employer has already paid things on your behalf before quoting you anything. Half of your Social Security and Medicare tax. Most of a health premium. Malpractice. A retirement match. Paid time off, which is salary you receive without working. The number on the offer sits on top of all of that.

A 1099 quote sits on top of nothing. It is gross revenue for a business whose only employee is you, and every one of those costs is now yours.

Payroll tax, in full. An employee and their employer each pay 7.65% of wages. A contractor pays the whole 15.3% as self-employment tax: 12.4% for Social Security up to a wage base that's $184,500 in 2026, and 2.9% for Medicare with no ceiling at all.2 Half of it you get to subtract from your taxable income before anything else is calculated, which softens the blow without erasing it. In one worked comparison, a physician on $325,000 of contract income owed about $30,500 where a W-2 physician on $300,000 owed about $15,700.1

Health insurance. You're now buying it on the open market rather than at an employer's negotiated group rate with an employer's subsidy attached. Family coverage is the line that moves.1 One exception worth pricing before you treat this as a cost at all: if a spouse or partner has employer coverage you can join, this line can collapse to close to nothing, and for a two-income household it is often the single thing that decides whether the contract rate works.

Malpractice, and the tail. A contractor commonly carries their own policy, which means the claims-made-versus-occurrence question in Reading a First Contract stops being someone else's decision and becomes a bill with your name on it.

Disability and life. Whatever your employer was providing, you're now the one buying it. Insuring the Only Asset You Own is the page about what to buy and in what order.

Time off. A salaried physician who takes three weeks still gets paid for three weeks. A contractor who takes three weeks earns nothing for three weeks. Divide accordingly before you compare hourly rates.

No unemployment insurance and no workers' compensation. Neither one feels relevant until it is.

That's where the 15% to 20% rule comes from.1 That is not a negotiating tactic, it is arithmetic, and a contract rate that only just beats a salary is a pay cut wearing a bigger number.

What contracting genuinely buys you

Plenty of physicians choose 1099 on purpose and do well by it. The costs are easy to count. The advantages take more arithmetic, and they are not smaller.

Retirement space, and this one is large. As an employee you defer up to $24,500 in 2026, plus whatever your employer chooses to add on top. As a self-employed physician with a solo 401(k) you contribute as both the employee and the employer, against a combined ceiling of $72,000.3 That is roughly $47,500 of additional tax-deferred room in a single year, and it belongs to you rather than to your employer's plan design. Reaching the ceiling takes enough net earnings to fund the employer half, so treat it as a ceiling rather than a promise. ⟳ Verify the current year's limits before planning against them.

Deductions, and this is where the gap is structural. A W-2 physician can no longer deduct unreimbursed work expenses at all. Continuing education, licensing, professional dues, board fees, equipment, a home office that meets the test, travel between sites: as an employee that is spent with money already taxed, and the deduction that used to exist for it is gone.4 As a business, every one of those comes off your income before the tax is calculated.

That asymmetry is worth more than it sounds, because of where a physician's income sits. A dollar deducted is a dollar that never gets taxed at your top rate. At a 32% to 37% federal marginal rate with state tax on top, $20,000 of legitimate business expense is somewhere near $7,000 to $9,000 of tax you do not pay, and the W-2 physician with the identical costs pays them out of what is left after tax.

This is what people mean when they say a colleague "paid less tax after going 1099." It is usually not a loophole. It is a tax code that treats a business's costs as costs and an employee's identical costs as personal spending.

Control. Which shifts, which sites, how many weeks. For some people that's worth more than the money, and for a physician trying to stay in medicine on reduced hours it can be the thing that makes staying possible.

The LLC, and what it actually does

The story usually arrives as structure: someone set up an LLC and their tax bill fell. Two different things are bundled in that sentence and they are worth separating.

Forming an LLC by itself changes nothing about your federal income tax. A single-member LLC is a disregarded entity by default, taxed exactly as you were before it existed.5 It is a liability and business-formality decision rather than a tax one.

What can move the number is an election made on top of it, most often electing S corporation treatment, where you pay yourself a defensible salary and take the remainder as a distribution that is not subject to self-employment tax. Three things bound how much that is worth. The IRS requires reasonable compensation for the work you actually do, and it can reclassify distributions as wages where the salary is too low.6 You add payroll administration and a second tax return. And the Social Security half of self-employment tax stops at the wage base regardless, so at attending income the saving is on the Medicare portion rather than on the whole 15.3%.

That is a conversation with an accountant who has seen your contract and your state. What it is not is a reason to assume the entity does the work.

The deduction you'll be told about that you probably won't get

Someone will mention the qualified business income deduction, Section 199A, and describe it as 20% off your business income for being self-employed.

Medicine is a specified service trade or business under that section, along with law, accounting, and consulting.7 For an SSTB the deduction phases out as income rises and reaches zero above the top of the range, which for 2026 is $276,750 for a single filer and $553,500 for a couple filing jointly.7 Most attending physicians are above that. A new provision guarantees a $400 minimum from 2026, which is a rounding error rather than a plan.7

So the deduction is real, and for most of the people it gets pitched to it is worth nothing. Ask whoever raises it what your income would have to be for it to apply.

The wall: 1099 and PSLF

Public Service Loan Forgiveness requires that you be employed by a qualifying government or 501(c)(3) organization. The program looks at who issues your tax form. If a nonprofit hospital pays you on a 1099 rather than a W-2, you're not its employee for PSLF purposes, and those months don't count toward your 120.8 Working at a nonprofit is not the test. Being employed by one is.

There is a narrow exception, and the precision matters. Some states bar nonprofit hospitals from directly employing physicians at all, under the corporate practice of medicine doctrine, California and Texas among them. A federal rule effective 1 July 2023 lets a contracted physician in that situation qualify anyway, certified under the qualifying nonprofit's EIN.8 That exception is about a state law making employment impossible. It does not cover a physician who simply took a contractor role in a state where employment was available.

Work through what that means against the numbers in The Personal Finance Crash Course. If you're carrying $215,000 and three or four years of qualifying payments from residency, and you take a 1099 job for a rate that's 18% higher, you've traded a forgiveness track for a raise that self-employment tax will mostly absorb. That can still be the right call. It should never be an accident.

Ask the question in the interview, in these words: "Is this position W-2 or 1099, and if it's 1099, is the practice one where state law prevents the hospital from employing physicians directly?"

It isn't actually your choice

Whether a worker is an employee or a contractor is a legal question with a legal test, turning on how much control the payer has over how, when, and where the work is done. An employer who directs your schedule, assigns your patients, and requires you to work exclusively for them has an employee, whatever the contract says.

Which means two things. If you're offered 1099 for a job that looks and behaves like employment, that's worth raising, because misclassification shifts cost onto you. And if a practice offers you a choice between the two for the same job, take that as information about the practice.

So which one is better

Neither.

W-2 buys certainty and moves risk off you. Someone else carries the malpractice, the tail, the unpaid weeks, the benefit shopping and the quarterly filings, and the number on the offer is the number. If forgiveness is part of your plan, it is also the only one of the two that keeps it.

1099 buys tax-advantaged room and control, and at a physician's income those are worth real money. The ceiling on what you can shelter is roughly three times an employee's, and the cost of practicing becomes deductible instead of personal.

The decision usually turns on three questions rather than on the rate. Whether PSLF is in your plan. Whether someone else in your household can carry the health coverage. And whether you will actually do the administration the 1099 side needs — the accountant, the quarterly payments, the records, the solo 401(k) you have to open yourself — because that is where the advantage most often fails to show up. The tax code is genuinely friendly to a business. It is friendly to a business that behaves like one.

What this page cannot tell you

It can't tell you which is better for you, because that depends on your specialty, your state, your family, your risk tolerance, and above all whether forgiveness is part of your plan. It can't give you the current year's contribution limits or tax thresholds, because those move annually and this page is reviewed once a year. And it can't replace an accountant, which is the one professional a newly self-employed physician should hire before the first quarterly payment rather than after the first tax bill.

What it can do is stop you comparing two numbers as though they measure the same thing.

What belongs to other pages

What physicians are actually paid, and the five levers that set where you land, is What Doctors Actually Make. The clauses in an offer that cost the most, tail coverage first among them, is Reading a First Contract. What forgiveness actually requires, and what it's a bet on, is The Personal Finance Crash Course.

What to settle before you compare two offers

  1. Ask every offer whether it's W-2 or 1099 before you compare it to anything.
  2. On a 1099 offer, add 15% to 20% to the salary you'd have accepted and treat that as the floor, then price health coverage, malpractice, tail, disability, and unpaid weeks on top. Then run it the other way, because the floor is only half the arithmetic: the deferral room you gain, the expenses that become deductible, and whether a spouse's plan removes the health line entirely.
  3. If PSLF is any part of your plan, resolve the employment question first. It outranks the rate.
  4. Hire an accountant before your first quarter as a contractor, not after your first tax bill. What the first two Aprils after training actually look like is The Refund, Then the Bill. Quarterly estimated payments start immediately and the penalty for missing them is real.
  5. If a job behaves like employment and pays like contracting, say so. Classification follows the facts, not the paperwork.

References

Tax rates, wage bases, contribution limits, and deduction thresholds change annually, and classification rules are enforced by more than one agency and interpreted by courts. Nothing here is tax or legal advice, and no page substitutes for an accountant who has seen your actual contract. This is educational information. Last reviewed: 2026-08-02

Footnotes

  1. W-2 and 1099 employment compared for early-career physicians: a contractor pays both halves of Social Security and Medicare, contract rates must exceed W-2 salaries by roughly 15% to 20% to break even, employer-subsidized family health coverage is a substantial part of the difference, and a solo 401(k) allows contributions as both employee and employer with a combined ceiling several times the employee deferral limit. Worked comparison of $325,000 of contract income against a $300,000 salary. American College of Emergency Physicians, Early Career Physician Section: https://www.acep.org/ecps/newsroom/ecps-newsroom-articles/w-2-or-1099-why-your-employment-type-determines-everything ⟳ Contribution limits and thresholds in that piece are 2025 figures; verify the current year before planning against them. ↩ ↩2 ↩3 ↩4

  2. Self-employment tax is 15.3%: 12.4% for Social Security applied to the annual wage base, $184,500 for 2026, and 2.9% for Medicare with no ceiling. It is assessed on 92.35% of net earnings from self-employment, and the employer-equivalent half is deductible above the line. Internal Revenue Service, self-employment tax: https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes ↩

  3. For 2026 the elective deferral limit is $24,500, with catch-up contributions of $8,000 from age 50 and $11,250 for ages 60 to 63; the overall limit on annual additions to a defined contribution plan under section 415(c) rises from $70,000 to $72,000, and the compensation limit is $360,000. A one-participant 401(k) lets a self-employed person contribute in both capacities against that overall limit, subject to enough net earnings to support the employer contribution. Internal Revenue Service: https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500 and https://www.irs.gov/retirement-plans/one-participant-401k-plans ⟳ Indexed annually. ↩

  4. Employees can no longer claim miscellaneous itemized deductions subject to the 2%-of-AGI floor, which is the category unreimbursed employee business expenses sat in. Narrow exceptions remain for Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and impairment-related work expenses; none covers a physician employee. Internal Revenue Service, Publication 529: https://www.irs.gov/publications/p529 ⟳ The disallowance has been extended by legislation more than once; verify it is still current before relying on the comparison. ↩

  5. A single-member LLC is treated as an entity disregarded as separate from its owner for federal income tax purposes unless it elects otherwise, so forming one does not by itself change how the income is taxed. Election to be treated as a corporation is made on Form 8832. For employment and certain excise taxes, a single-member LLC is still treated as a separate entity. Internal Revenue Service: https://www.irs.gov/businesses/small-businesses-self-employed/limited-liability-company-llc ↩

  6. S corporations must pay reasonable compensation to a shareholder-employee for services before non-wage distributions are made, and distributions must be treated as wages to the extent they are reasonable compensation for services rendered. Courts have upheld the reclassification of distributions as wages where compensation was understated. Internal Revenue Service: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues ↩

  7. The Section 199A qualified business income deduction treats health as a specified service trade or business, for which the deduction phases out over an income range and is unavailable above it. For 2026 the thresholds are $201,750 for single filers and $403,500 for married filing jointly, with the phase-in ranges ending at $276,750 and $553,500 respectively. A $400 minimum deduction applies from 2026 for taxpayers with at least $1,000 of qualified business income who materially participate. Internal Revenue Service, qualified business income deduction: https://www.irs.gov/newsroom/qualified-business-income-deduction ⟳ Thresholds are indexed annually. ↩ ↩2 ↩3

  8. Public Service Loan Forgiveness requires employment by a qualifying employer, and the Department looks at the tax form the organization issues. A worker who receives a 1099 rather than a W-2 is not that organization's employee for PSLF purposes. A federal rule effective 1 July 2023 provides a limited exception where state law prohibits a qualifying nonprofit from directly employing the physician, as under the corporate practice of medicine doctrine in states including California and Texas; the physician certifies under the nonprofit's EIN. Federal Student Aid, PSLF employer eligibility: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service ⟳ The 2023 rule and PSLF generally have been subject to rulemaking and litigation; verify before relying on either. ↩ ↩2