Setting up an S corp

Do you actually need one?

For a 1099 locum physician with substantial net self-employment income, an S corporation election often pays for itself. At lower income the payroll and accounting overhead can exceed the saving. The decision is arithmetic, not identity — run it every year.

The savings come from one place only: distributions are not subject to the self-employment tax that applies to sole-proprietor profit. Income tax does not change.

Why "just form an LLC" is wrong advice for physicians

Most states have corporate practice of medicine (CPOM) statutes: a general LLC may not own or operate a medical practice, and in several states a non-physician may not hold an interest in the entity at all. Physicians in those states form a professional entity — a PC, PA, or PLLC — often with approval from the state medical board before the secretary of state will register it.

Generic incorporation services will happily sell you a plain LLC in a CPOM state. That entity may be invalid for billing, may void malpractice arrangements, and is a nuisance to unwind.

California is the hardest case. There is no PLLC statute at all, and Corporations Code § 17701.04(e) bars LLCs — California-formed and foreign alike — from rendering professional medical services. The Moscone-Knox professional medical corporation is the only route, with physicians holding at least 51% of shares. Registering a Wyoming or Nevada LLC does not solve this, because the bar reaches foreign LLCs too. New York similarly requires physician ownership.

The steps

1. Confirm your state's CPOM position and permitted entity type.
2. Reserve the entity name, including any required designator.
3. Obtain medical board approval or a certificate of registration if required.
4. File articles of incorporation or organization.
5. Get an EIN from the IRS.
6. Adopt bylaws or an operating agreement.
7. Open a dedicated business bank account. No commingling.
8. File Form 2553 to elect S corporation treatment.
9. Register for state payroll withholding and unemployment.
10. Set a defensible reasonable salary, documented against specialty survey data.
11. Run real payroll through a provider that files 941s and W-2s.
12. Move your locum contracts and 1099s onto the entity's EIN.

A SECURE 2.0 change that catches high earners

Starting with the 2026 plan year, if your prior-year FICA wages exceeded $150,000, your catch-up contributions must be made as Roth. Nothing about this is optional, and a plan document that has not been amended for it is a problem to raise with your CPA and your plan provider now, not at year end. Source: SECURE 2.0 Act.

Figures to check yourself

The Social Security wage base and QBI phase-in thresholds change from year to year, and we do not publish those numbers here. Verify each against current IRS publications before you set salary — a salary chosen against a stale wage base is a common and expensive error.

The solo 401(k) limits for 2026, per IRS Notice 2025-67, are:

• Employee deferral: $24,500.
• Employer profit-sharing: up to 25% of compensation.
• Combined limit: $72,000.
• Catch-up: $8,000 at ages 50–59 and 64+, and $11,250 at ages 60–63.
• Compensation counted for the employer contribution is capped at $360,000.

Treat even these as figures to confirm. They are annual numbers published by the IRS and they move; check the current notice before you fund anything.

Sources

• IRS Notice 2025-67 — 2026 retirement plan contribution and compensation limits.
• SECURE 2.0 Act — Roth catch-up requirement for high earners from the 2026 plan year.
• California Corporations Code § 17701.04(e) — bar on LLCs rendering professional medical services.
• Moscone-Knox Professional Corporation Act — California professional medical corporation requirements.