Managing taxes as a locum tenens provider is all about strategy.
As a 1099 physician, your income structure creates more opportunities for deductions and long-term tax planning than a traditional W-2 role. One of the most valuable of these opportunities is the Qualified Business Income (QBI) deduction.
In 2026, significant changes are coming to the QBI deduction that could directly impact how much of your income you get to keep. The good news? You may be eligible to deduct more than ever before. But there are key rules to navigate, especially if you’re earning a high income or working across both 1099 and W-2 positions. Here’s what every locum tenens provider needs to know about maximizing QBI savings under the new law.
What Is QBI Deduction and What’s Changing in 2026?
The Qualified Business Income deduction was introduced under the Tax Cuts and Jobs Act of 2017 and applies to income earned from a qualified trade or business, typically including sole proprietors and S-Corp owners. For physicians operating under a 1099 contract, this deduction can provide significant tax relief.
Through 2025, the deduction has been capped at 20% of QBI. However, starting in 2026, the ”One Big Beautiful Bill” (OBBB) raises that deduction to 23% for eligible taxpayers, creating greater savings potential for locum tenens professionals.
QBI includes the net income from your locum tenens business, minus expenses, such as:
- self-employment tax
- self-employed health insurance
- retirement contributions (such as Solo 401(k) or SEP IRA contributions)
QBI is separate from your business expenses and is claimed in addition to standard deductions. It does not include W-2 wages, investment income, or guaranteed payments to partners.
QBI Limitations for Physicians
Because physicians are categorized as a Specified Service Trade or Business (SSTB) by the IRS, the QBI deduction begins to phase out once your income crosses certain thresholds.
Beginning in 2026, the phase-out starts at:
- $75,000 for single filers
- $150,000 for joint filers
Unlike the current law, the OBBB eliminates the hard cutoff. Instead, the deduction gradually phases down, allowing partial deductions even at high-income levels.
How to Calculate the Deduction
If your income exceeds the phase-out range, your QBI deduction is limited to the lesser of:
- 23% of your QBI, or
- The greater of:
- 50% of W-2 wages paid by your business
- 25% of W-2 wages paid + 2.5% of the unadjusted basis of qualified property
These rules can get complex—especially if your business owns real estate or has multiple revenue streams. That’s where working with a CPA who understands locum tenens tax law is crucial.
Example: If you earn $300,000 in net 1099 income, your maximum deduction could be $69,000—but actual savings will depend on your wages and business assets.
What it Means for Locum Tenens Doctors
Even though SSTBs face limitations, 1099 physicians still benefit more than W-2 employees. Under the current law, high-earning physicians lose the QBI deduction entirely once they pass a specific limit. Starting in 2026, high earners can qualify for partial deductions regardless of their income level.
This offers more flexibility for 1099 physicians and could lead to significant long-term tax savings. Also, if you’re currently splitting work between W-2 and 1099 roles, it may be worth considering a shift toward 1099 income to leverage QBI and retirement contributions better.
Maximize QBI: Structuring Your Business Matters
Entity Selection Matters
One of the most effective ways to take advantage of the QBI deduction is to operate as an LLC taxed as an S-Corp. This structure allows you to:
- Pay yourself a reasonable salary (subject to employment taxes)
- Take the rest of your income as distributions (not subject to employment taxes)
- Deduct qualified expenses and retirement contributions
Additionally, working as a 1099 physician opens the door to:
- Greater contributions to retirement accounts like Solo 401(k)s and SEP IRAs
- Strategic use of cash balance pension plans
- Potential family payroll tax strategies
Note: Estimated maximum Solo 401(k) contribution in 2025: $70,000
Aggregating Multiple Businesses
If you own different pass-through entities, another strategy to maximize QBI is aggregating the structures. This allows you to combine your W-2 wages and qualified property for calculating the QBI deduction. Just be aware of the SSTB limitations stated above.
Utilize W-2 Wages and Qualified Property Purchases
If your pass-through entities exceed the business income limitation, QBI is limited by W-2 wages. By strategically increasing your W-2 wages, you can potentially increase your QBI deduction. However, suppose you prefer not to be burdened by FICA taxes on W-2 wages, qualified business property investments, such as equipment or real estate. In that case, you can also positively impact the QBI calculation.
Since 1099 income requires quarterly estimated tax payments, we recommend regular entity reviews throughout the year to ensure compliance and optimize your strategy.
Get QBI-Ready for 2026
Now is the time to prepare your financial strategy. Use these questions as a guide:
- Are you earning a mix of W-2 and 1099 income?
- Are you near or above the QBI phase-out thresholds?
- Are you currently structured as a sole proprietor, LLC, or S-Corp?
- Have you optimized retirement contributions to reduce taxable income?
- Are you working with a CPA who specializes in physician tax law?
Taking proactive steps in 2025 will position you for the new deduction rules in 2026 and potentially unlock substantial savings.
The Doctor’s CPA: Your QBI Strategy Partner
The Doctor’s CPA specializes in helping locum tenens physicians make strategic decisions about tax planning, business formation, and long-term wealth building. With the QBI deduction increasing to 23% in 2026, we can help you build or restructure your financial plan.
Whether you’re transitioning to a 1099 role, setting up an S-Corp, or planning your estimated tax payments, we can assist with:
- Navigating SSTB limitations
- Structuring income for maximum deductions
- Optimizing contributions to retirement plans
Let’s make sure you’re QBI-ready. Schedule your free consultation with The Doctor’s CPA today.