For physicians with hospital W-2 pay and 1099 locum work, reconcile compensation by employer, tax structure, and year before requesting a defined benefit plan illustration.
Yes, potentially: a hospital-employed physician with genuine self-employed locum earnings can consider a defined benefit plan sponsored by that business, subject to worker and related-employer review and actuarial design. Unrelated hospital W-2 wages are not automatically that business's plan compensation. The question is which employer and earned compensation the actual plan would use. Do not add hospital wages to locum receipts and call the sum plan compensation. This is a source-of-pay worksheet for mixed W-2 and 1099 work; our broader physician guide covers multi-entity practice ownership.
Start with the hospital employer, hospital W-2 pay, benefits, and any hospital retirement plan. Put the locum practice on another row with its legal form, invoices, business expenses, payroll if any, and workers. Note whether the contracts actually make the physician an independent business owner under the facts; a 1099 label alone is not a plan design. IRS Publication 560 explains that an employee may also be self-employed and that the rules for self-employed retirement contributions depend on earned income from that business.
For a sole proprietor, gross locum receipts are not final plan compensation. The IRS sole-proprietor compensation guidance starts with net earnings and accounts for relevant self-employment tax and retirement-plan adjustments. If the business is an S corporation, the IRS distinguishes W-2 compensation from shareholder distributions for retirement-plan purposes. Have a CPA and actuary apply the actual structure and plan terms; do not derive a contribution from a gross 1099 total.
An established locum practice should send a record that explains how the income was earned and reported. An LLC name alone does not identify the federal tax treatment. Confirm the tax classification and the employer sponsoring the proposed plan before selecting a compensation figure.
| Pay source or structure | Records to give the accountant and plan adviser | Question to resolve before the illustration |
|---|---|---|
| Hospital employment | Hospital W-2, employer name, and existing retirement-plan information | Keep this employer's pay separate; ask the adviser about relevant coordination with the locum business. |
| Locum sole proprietorship | Locum invoices and receipts, reconciled expenses, Schedule C, and Schedule SE workpapers | Which adjustments turn business net profit into the earned income needed for this plan purpose? |
| Locum S corporation | Owner payroll register, W-2, tax return, and a separate shareholder-distribution ledger | Which pay items count under the proposed plan's compensation definition? Shareholder distributions do not become earned income for retirement-plan purposes. |
| Partnership medical practice | Form 1065, the physician's Schedule K-1, guaranteed-payment detail, partnership agreement, and self-employment workpapers | What earned income belongs to this trade or business? A cash draw or a K-1 total alone does not resolve that calculation. |
The IRS partnership compensation guidance identifies the partnership as the employer for retirement-plan purposes and requires earned income to be calculated by trade or business. It also explains that not every partner has net earnings from self-employment. Partner status and the character of payments require review; do not treat all partnership distributions as universally eligible compensation.
The plan document matters as well as the tax return. The IRS guidance on plan compensation definitions shows how different definitions are reviewed, in the context of design-based safe harbors for qualified plans. Ask the administrator to identify the applicable definition and measurement period, and to explain the treatment of bonuses, deferred pay, and other payroll items. A payroll total should not silently substitute for the plan's required figure.
Assume a physician receives $230,000 of hospital W-2 wages and separately bills $140,000 for locum shifts through a sole proprietorship. The locum business has $30,000 of deductible business expenses, leaving an illustrative $110,000 before the additional adjustments relevant to self-employed plan compensation. The worksheet records hospital wages and locum net earnings on different rows. These are hypothetical amounts, not a client result or a plan recommendation. It does not turn $340,000 into the locum plan's compensation base, and $110,000 is preliminary business profit, not a calculated or approved defined benefit contribution. An enrolled actuary needs verified compensation, age, benefit formula, existing plan details, and current rules to produce an illustration.
Next, stress-test locum collections and coverage of the physician's operating costs. If shifts stop for a quarter, can the practice still handle obligations under a professionally designed plan? The IRS defined benefit overview describes formula-based benefits and annual actuarial funding. An unusually strong run of shifts should not be mistaken for a permanent funding capacity.
Use a compensation schedule with one row per employer, income source, and year. Record the source document, gross receipts or payroll amount, accounting adjustments, proposed plan-compensation amount, whether the figure is actual or projected, and the person responsible for resolving it. Leave the proposed amount marked pending adviser confirmation when the calculation is incomplete.
For a 2026 request prepared before year-end, attach the latest reconciled books and payroll, the remaining-year assumptions, and the prior filed return. Label projected shifts, expenses, and payroll explicitly. The online Publication 560 currently available is the 2025 edition and includes selected 2026 updates; have the accountant and actuary apply the rules for the actual tax year and plan year. Its percentage-based self-employed contribution worksheet should not be used as a defined benefit contribution calculator.
The accountant reconciles the income and tax treatment; the administrator confirms the plan definition and employee data; the enrolled actuary applies the benefit formula and funding assumptions. Request an illustration that identifies its compensation inputs, their year, unresolved items, and whether a change in year-end income would require a revised calculation. The IRS sponsor guidance calls for communication of accurate payroll, census information, and compensation changes to plan providers.
Return to the hypothetical physician above: the accounting handoff contains a separate hospital W-2 row, $140,000 of locum receipts, $30,000 of expenses, and the $110,000 preliminary business profit. The accountant reconciles that profit and supplies the self-employment adjustments. The administrator and actuary resolve the compensation used for each relevant plan purpose. The resulting contribution and deduction remain uncalculated here. If the physician instead operates through an S corporation or joins a partnership, prepare that structure's records rather than carrying the sole-proprietor figure into the new illustration.
Provide the adviser with a worker census, ownership interests in other practices, and information on existing plans. “Solo” on an invoice does not settle employee coverage or related-employer questions. Ask the administrator to document the filing and valuation duties applicable to the actual one-participant or employee plan. The Department of Labor's Form 5500 overview describes the reporting framework, while the IRS Form 5500-EZ resources provide the form, instructions, and prior revisions. Have the administrator select the instructions for the actual filing year. The administrator should apply those rules to the actual plan; do not assume every owner-only plan files the same form.
For a decision file, collect contracts, tax returns, payroll records, business financials, and the latest plan documents, then ask an actuary and CPA to model the actual employer. TaxBowl's tax advisory team can help organize the accounting and compensation inputs.
