If you are employed by a hospital with a W-2 and a 403(b) they administer, this article is not for you. It is about income that arrives on a 1099 with nothing withheld and no plan attached.

For a contract physician the retirement contribution is usually the single largest deduction on the return — larger than mileage, larger than tail coverage, larger than the home office and the licences and the CME put together.

It is also the one most often misfiled, because the instinct is to treat it like every other business cost. Publication 560 closes that door in one caution:

"Remember that sole proprietors and partners can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees."

The short answer

The question 2026
Where your own contribution is deducted Schedule 1, line 16
Does it reduce self-employment tax? No
Defined contribution limit, §415(c) $72,000
Elective deferral limit, §402(g) $24,500
Catch-up at 50 / ages 60–63 $8,000 / $11,250
Compensation counted, §401(a)(17) $360,000
Defined benefit annual benefit, §415(b) $290,000

Two schedules, two different taxes

Contributions you make for an employee are an ordinary business expense and go on Schedule C. Contributions you make for yourself do not:

"Sole proprietors and partners deduct contributions for themselves on line 16 of Schedule 1 (Form 1040)."

Schedule 1 sits below Schedule C. Self-employment tax is computed on Schedule C's net profit. So your own contribution reduces taxable income and leaves the profit that self-employment tax runs on exactly where it was.

That sounds like it should hurt. At locum income it barely does.

Why the missing half costs less than you would think

Self-employment tax is not one rate all the way up. The 12.4% Social Security half stops at the wage base — $184,500 for 2026. Above it only Medicare continues: 2.9%, plus 0.9% Additional Medicare above $200,000 single or $250,000 filing jointly.

Take $420,000 of Schedule C profit:

Component Amount
Net earnings (92.35% of profit) $387,870
Social Security, capped at $184,500 $22,878.00
Medicare at 2.9% $11,248.23
Additional Medicare at 0.9% $1,690.83
Total self-employment tax $35,817.06

Now the marginal question. The next dollar of profit carries 3.8% — not 15.3% — which on the 92.35% base is about 3.51% of profit. If a $72,000 deferral had reduced self-employment tax, it would have saved roughly $2,527.

Against income tax at a 35% marginal rate, the same $72,000 is worth $25,200.

The proportion worth rememberingAt this income the deferral does about 91% of the job it could theoretically do. The schedule it sits on costs you the last 9% — and no arrangement of the same contribution changes that.

The rate that is not the rate

A plan that says 25% does not mean 25% of your profit. Publication 560 explains why:

"The deduction for contributions to your own SEP IRA and your net earnings depend on each other. For this reason, you determine the deduction for contributions to your own SEP IRA indirectly by reducing the contribution rate called for in your plan."

Your net earnings are figured after the deductible part of self-employment tax and after the contribution — and the contribution is a percentage of net earnings. Each depends on the other. The publication resolves it with the Rate Table for Self-Employed and the Deduction Worksheet for Self-Employed rather than arithmetic you can do in your head, and a 25% plan rate lands nearer 20% of profit.

This is the most common way a physician over-contributes in a good year, and excess contributions have their own carryover rules and their own penalties.

The lever that is not a percentage at all

Everything above is a defined contribution limit: $72,000 for 2026 under section 415(c)(1)(A), up from $70,000.

A defined benefit plan is a different instrument. Its limit is on the annual benefit — $290,000 for 2026 under section 415(b)(1)(A) — and the contribution required to fund that benefit is an actuarial computation based on your age, the target benefit and the plan's assumptions. For a physician with high income and fewer years left to fund, it can be a multiple of the defined contribution limit.

It is also a commitment. A defined benefit plan carries a minimum funding requirement — the contribution is owed in a thin year as well as a good one. That is the trade, and it is a decision to take with an actuary and your own accountant rather than from an article.

Two IRS pages, two years

The current Publication 560 is the 2025 edition. It prints $280,000 for the defined benefit limit and $350,000 for the compensation cap.

Notice 2025-67 gives the 2026 figures: $290,000 and $360,000.

Neither document is wrong. They cover different years, and a physician reading the publication in the middle of 2026 will find last year's numbers presented with no warning attached. Check the year on the source before you check the number.

Where this touches the other deduction

One more reason the schedule matters. The qualified business income deduction is decided by taxable income, and this deduction reduces taxable income. Medicine is a specified service trade or business, so above the top of the phase-in range there is no deduction at all — the same ceiling that applies to a therapy practice.

Whether a deferral moves you somewhere useful on that curve depends on your own numbers, your filing status and your spouse's income. That calculation belongs with your accountant. What belongs here is the fact that the two are connected at all, because a deferral decided purely on cash flow can be worth considerably more — or considerably less — than the income tax saving it looks like on its own.

Common questions

Where do I deduct my own retirement contribution?
Not on Schedule C. Publication 560: "Sole proprietors and partners deduct contributions for themselves on line 16 of Schedule 1 (Form 1040)." It adds a caution: sole proprietors and partners "can't deduct as a business expense contributions made to a SEP for themselves, only those made for their common-law employees."
Does the contribution reduce my self-employment tax?
No. Self-employment tax is computed on the net profit from Schedule C, and this deduction sits below Schedule C on Schedule 1. Contributions you make for your own employees are a business expense and do reduce that profit; contributions for yourself do not.
How much does that cost me?
Much less than it sounds at locum income. Above the Social Security wage base — $184,500 for 2026 — the 12.4% half has already stopped. What is left is 2.9% Medicare plus 0.9% Additional Medicare above the threshold, which works out near 3.5% of profit. On a $72,000 deferral that is roughly $2,500 you were never going to save, against income tax relief many times larger.
How large can the contribution be for 2026?
Notice 2025-67 sets the section 415(c)(1)(A) defined contribution limit at $72,000 for 2026, up from $70,000. The section 402(g)(1) elective deferral limit is $24,500, the age 50 catch-up is $8,000, and for ages 60 through 63 it is $11,250. Compensation that can be counted is capped at $360,000 under section 401(a)(17).
What about a defined benefit plan?
It is a different limit entirely. The section 415(b)(1)(A) annual benefit limit rises to $290,000 for 2026. The contribution needed to fund that benefit is an actuarial calculation, not a percentage, and for a high-earning physician near the end of a career it can be far larger than $72,000. It also brings a minimum funding requirement, which is a commitment, not an option you revisit each spring.
Why is my 25% plan not actually 25%?
Because the figure is circular. Publication 560: "The deduction for contributions to your own SEP IRA and your net earnings depend on each other. For this reason, you determine the deduction for contributions to your own SEP IRA indirectly by reducing the contribution rate called for in your plan." You use the Rate Table or Rate Worksheet for Self-Employed rather than multiplying profit by the plan rate.
Does deferring help my qualified business income deduction?
It can move the number that decides it, because the QBI thresholds are measured against taxable income and this deduction reduces taxable income. Medicine is a specified service trade or business, so above the top of the phase-in range there is no deduction at all. Whether a deferral lands you somewhere useful is specific to your figures and belongs with your own accountant.
Which numbers should I trust — the publication or the notice?
Both, for their own year. The current Publication 560 is the 2025 edition and prints $280,000 for the defined benefit limit and $350,000 for the compensation cap. Notice 2025-67 gives the 2026 figures: $290,000 and $360,000. Neither is wrong; they cover different years.

This article is for educational purposes only and does not constitute tax, legal, or financial advice. Consult a qualified tax professional about your situation.

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