The setup

Most graduating hem/onc fellows walk into their first attending year holding one of two offer shapes:

• A W-2 employed position at an academic center, community hospital, or physician-owned group where you're treated as an employee. Salary + benefits + 401(k)/403(b) + malpractice + CME allowance, all withheld and administered by the employer.
• A 1099 contractor position — most commonly a locum tenens arrangement through a staffing firm, but occasionally a per-diem or moonlighting arrangement at an academic center. You are your own business. No withholding, no employer-provided benefits.

The dollar figures on the top line of these two offers can look identical. The financial reality is not.

What actually changes

Taxes

W-2. Your employer withholds federal income tax, state income tax (where applicable), Social Security, and Medicare on each paycheck. They pay half of your Social Security + Medicare payroll tax (7.65% of wages up to the annual Social Security wage base) — you never see it.

1099. No withholding. You pay quarterly estimated taxes to the IRS and your state. You pay both halves of Social Security + Medicare — the "self-employment tax," 15.3% on the first ~$168,600 of net earnings (SS + Medicare portion, 2024 figure — check the current-year threshold) and 2.9% Medicare on everything above, plus an additional 0.9% Medicare surtax at high incomes.

Practical effect: the "same" $500,000 offered as 1099 vs. W-2 is materially different pre-tax dollars, because self-employment tax alone claims an extra ~7.65% on the first ~$168K of net earnings you'd have kept as a W-2 employee.

The saving grace on 1099 is that you can deduct legitimate business expenses (malpractice premiums, CME, licensing, home office, mileage where applicable, health insurance premiums) and, more importantly, you can access much larger retirement savings vehicles.

Retirement contributions

W-2. You get access to whatever your employer sponsors. Typically a 401(k) or 403(b) with an employee elective deferral limit around $23,000 (2024, check current-year), plus employer match (2–6% is common), plus (at academic centers) sometimes a 457(b) that lets you double up. Some private groups offer defined-benefit / cash-balance plans on top.

1099. You open your own retirement plan. The two common structures for a solo physician contractor:

• SEP-IRA. Simple to open (Fidelity, Vanguard, Schwab all offer them free). Contribute up to 25% of net self-employment income, capped at the annual defined-contribution limit (~$69,000 in 2024). No Roth option, no employee vs. employer split.
• Solo 401(k). Slightly more paperwork. Combined employee ($23,000 elective deferral) + employer (25% of net) contributions, same overall cap. Allows a Roth 401(k) sub-account, which SEP-IRA does not. Allows loans in a pinch (SEP-IRA does not).

For a high-earning oncology 1099 attending, the Solo 401(k) usually wins on flexibility. Physician-focused CPAs and financial planners will steer most fellows toward Solo 401(k) unless simplicity is the overriding concern.

Benefits and insurance

W-2. Employer subsidizes health, dental, vision, life, disability. Malpractice is included (occurrence-based or claims-made with tail — see below). CME and licensing allowance is a line item.

1099. You buy your own. Health insurance via the ACA marketplace, private brokers, or a professional-association group plan. Own-occupation disability insurance from a physician-focused broker (Guardian, Principal, MassMutual, Ameritas — the "big five" for physicians). Malpractice usually funded through the staffing agency or client, but read the specific policy carefully — many locum arrangements carry claims-made coverage that requires you to buy tail insurance separately when the assignment ends.

State tax residency

W-2. You pay state income tax where you work. Straightforward for a single-state employed physician. Slightly complex if you commute across state lines (reciprocity agreements matter — e.g. NJ/PA, MD/VA).

1099 with multi-state locums. You may owe income tax in every state where you performed clinical work, prorated to days-worked. You'll file a resident return in your home state and non-resident returns in every state where you generated income above that state's filing threshold. Some states (TX, FL, TN, NV, WA, SD, WY, AK) have no state income tax and are common home bases for high-earning 1099 physicians for exactly this reason — but "home base" has to be defensible (voter registration, driver's license, primary residence, dependents' schools, church membership all considered).

When 1099 makes sense

Broadly, a 1099 arrangement is more attractive to a graduating fellow when:

1. You want geographic flexibility. Locums for the first 1–2 years lets you sample practice patterns in different states before committing to a long-term contract. The comp premium (locums pays 30–50% more per shift for equivalent work) offsets the extra taxes.
2. You have high student loan balances and want optionality on where to file. State-level PSLF equivalents and tax-favorable states can be worth the tradeoff.
3. You want maximum retirement savings. Solo 401(k) + SEP-IRA combined caps run higher than most employer 401(k) plans, especially when the employer match is modest.
4. You have significant deductible business expenses — malpractice tail premiums, physician-specific CME conferences, home office space that genuinely qualifies.
5. You already have a spouse's W-2 job that provides health insurance. Removes the single biggest headache of the 1099 structure.

When W-2 makes sense

Most graduating fellows are better off with W-2 for a first attending role because:

1. Simplicity. You spend PGY-7 learning to attend, not learning to run a business. Estimated taxes, business bookkeeping, self-employed retirement plan administration, and multi-state tax returns are all real work.
2. Health insurance access. ACA marketplace plans are expensive at high incomes without a subsidy, and short-term / catastrophic plans have narrow physician-only networks.
3. Disability insurance underwriting is easier while employed. Insurers write more favorable policies when you have documented employment income vs. contractor income, particularly in the first two years post-fellowship.
4. PSLF eligibility. Public Service Loan Forgiveness requires 120 qualifying payments at a 501(c)(3) qualifying employer, which W-2 employment at academic centers and non-profit systems provides. 1099 work at those same institutions typically does not qualify, even if the client is a 501(c)(3).
5. Cash flow. Bi-weekly paychecks vs. quarterly invoice-and-wait beats out most contract-side benefits during the first year of practice, when relocation costs and student loan payments are peaking.

The middle path

Some fellows do both, deliberately. Common patterns:

• W-2 primary + 1099 moonlighting. Full-time employed position at an academic center or community group, plus 1099 shifts on weekends or vacation days at a different site. Gives you the safety net of the primary job's benefits + PSLF eligibility, plus the marginal 1099 income to fund a Solo 401(k) or accelerate student loan payoff.
• 1099 for 1–2 years post-fellowship, then W-2. Deliberate locums window to see practice patterns and geographies before committing to a long-term contract. Requires strong self-management and comfort with variable cash flow.

Decision framework

Before you sign either flavor of contract, work through:

1. Total compensation, not top-line. Compare the W-2 offer's benefits value + employer retirement contributions to the 1099 offer's raw dollars minus the self-employment tax hit and the cost of buying equivalent benefits privately. A "$400K W-2 with 6% match + full health + occurrence-based malpractice" and a "$550K 1099 with agency-provided claims-made malpractice" are often much closer than they look.
2. State residency plan. If you're staying single-state, this is a wash. If you're planning multi-state locums, spend serious time on state residency planning before you take your first shift out of state.
3. Retirement contribution target. How much do you actually want to save annually? If the answer is $23K + employer match, most W-2 plans get you there. If the answer is $50K+ across accounts, 1099 with a Solo 401(k) has more headroom.
4. PSLF plan. If you have >$200K in federal student loans and are gunning for PSLF, W-2 at a qualifying employer is nearly always the right structure for at least the first 10 qualifying years.
5. Family risk tolerance. Variable income, private health insurance, and self-managed retirement work better when household finances have runway. Less well when they don't.

What to bring to your CPA

Once you've narrowed to one or two offer structures, bring your CPA:

• Both offer letters, unredacted.
• Your student loan servicer's current balance, interest rate, and payment plan.
• Your spouse's income and benefits, if applicable.
• Your current home state and the state(s) where the offer would take you.
• Your target retirement savings rate.
• Any expected large expenses in the next 24 months (home purchase, relocation, wedding, first child, board recertification cycle).

That's enough for a physician-focused CPA to model both structures side by side and give you a defensible after-tax, after-benefits comparison. Do not let a recruiter run this comparison — recruiters are compensated on placement, not on your net-of-tax outcome.

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About this article. This is a draft written by LeoMed staff, pre-review by a physician-focused CPA. Numbers are 2024-era illustrative figures; check current-year IRS limits before acting. Nothing here is tax advice for your specific situation. Consult a CPA who works with physicians in the state where you will be practicing.