7 reasons your taxes are high as a physician (and what you can do about it)

Published March 13, 2024

Key Takeaways

As a physician you likely make multiple six-figures a year, which puts you into a higher tax bracket and makes you ineligible for certain tax deductions.
Utilizing pre-tax retirement accounts at your job and other tax-efficient vehicles, such as an HSA, Dependent Care FSA, or 457b plan, can help reduce your tax burden.
Being married, having children, and/or owning your own home all allow certain tax breaks—considering these can be helpful in setting future financial goals.

Filing your taxes this year, you may have noticed something a little off putting: You pay a LOT to Uncle Sam. It may be especially shocking this year if you are a new attending who just finished training, or if you saw a jump in income, or if you changed jobs and your filing status changed.

Among other factors, these changes over the course of your career as a physician can result in significant increases on the amount you owe to the IRS come tax time. Let’s dive a little deeper on why your taxes may be higher if you’re a physician.

1. You make a lot of money

Our tax system is progressive. This means the higher your income, the higher the percentage that you pay in federal taxes.

Making a high income also makes you less likely to qualify for certain tax credits that people with lower incomes may receive.

The solution, of course, is not to strive to make less money. Shift your mindset—if you had the choice of making a million dollars each year while paying a high percentage in taxes, or making the average household income of $60,000 paying hardly anything in taxes, which would you choose? The millionaire will always end up ahead.

Adopt this same mindset with your own scenario—one reason you pay a lot in taxes is because you make a lot of money relative to the general population.

2. You don’t contribute the maximum to pre-tax retirement accounts

Another reason your tax bill may be high is because you are not utilizing tax-efficient investing. One way to lower your yearly taxes while also building wealth is to invest money in retirement accounts. When you contribute money to these accounts with pre-tax dollars, the amount is subtracted from your taxable income, lowering the amount of tax you owe.

If you are not employed and instead do locums work, or other types of work that pays you as a 1099 contractor, you should definitely open your own retirement account (like a solo 401k) if you haven’t already. You can make regular contributions to this account, allowing your nest egg to grow while saving thousands on your taxes each year at the same time.

3. You don’t utilize other tax-savvy accounts

Work retirement accounts are not the only type of accounts that can save you money on your taxes each year. If you have a high-deductible health plan, you can also invest money in a health savings account (HSA). Any money you contribute to the HSA is deducted from your taxable income.

If you are not eligible for an HSA, you can instead contribute pre-tax dollars to a flexible spending account (FSA) and use that money to pay for prescriptions, doctor co-pays, dental procedures, contacts/glasses, and other health-related products totally tax free.

If you have children in daycare or are caring for an elderly adult who requires skilled nursing care, you may want to contribute money to a dependent care FSA. Money in a dependent care FSA can be used to pay for your dependent’s healthcare expenses, in turn saving you even more in taxes.

If you are a physician who works at an academic institution or a large nonprofit health system, you may be able to contribute money to a 457b deferred compensation plan.

These plans are similar to work retirement accounts and they allow you to contribute an additional $23,000 per year for retirement, which also saves you thousands of dollars in taxes.

4. You don’t have kids or a spouse

Family structure factors into your taxes as well. Physicians who are not married are in higher tax brackets than those who are married and filing jointly. For example, if you are a highly paid physician and your spouse does not work, or makes a comparatively lower income, filing your taxes “married filing jointly” may save you a substantial sum each year.

The tax code also favors parents. If you have children or other dependents, you may be eligible for certain tax credits and deductions childless people don’t have access to.

"The solution is not to get married or have kids to save money on taxes, of course, but these big life changes can be advantageous from a tax standpoint."

— Lisha Taylor, MD, MPH

5. You don’t pay a mortgage

One of the biggest tax deductions physicians utilize that saves them money on taxes is the mortgage interest deduction. This means you can deduct the interest you pay on your mortgage from your taxes each year (up to a certain amount). If you don’t have a mortgage and rent your home instead, you cannot take advantage of this tax break.

I wouldn’t advise anyone to purchase a home just for the tax deduction, but if you are settled in an area and thinking of owning a home, doing so could save you money on your taxes while allowing you to purchase an asset that will only increase in value over time, further adding to your net worth.

6. You aren't optimizing your giving

If you are a doctor who is altruistic and donates to certain charities, churches, and organizations each year, there are tax-efficient ways to optimize your giving. Make sure your gift is tax deductible, and consider itemizing your taxes when you file your return so your donation can be used to actually lower your taxes.

You may also want to rethink the timing of your gifts. Some people come out ahead by giving money every other year instead of giving the donations every month or every quarter. Other people come out ahead by donating stocks and other investments instead of giving cash. The best methods for you depend on your own unique situation.

7. You didn’t account for side income

One of the other reasons you may pay a lot in taxes is because you also have other sources of income. If you also make money on the side, there’s a good chance you are paid as an independent contractor.

When you are paid as an independent contractor, the business who pays you does not withhold taxes from your paycheck. This means you have to reserve money for taxes on your own, and the amount you pay in taxes may be higher than you think.

You have to pay federal taxes, state taxes, and both the employee and the employer portion of FICA taxes (Social Security and Medicare), which can increase your tax bill by another 15%.

What this means for you

If you’re a physician who pays a lot in taxes each year, there may be several reasons why. The most common reason is that you make a lot of money or have additional sources of revenue that you have to account for. Another reason is that you may not be maxing out your retirement accounts or other tax-efficient accounts. Make sure you are taking advantage of certain incentives in the tax code to enjoy more of your physician salary.