For many physicians, whether just out of training or years into attending life, the complexity of your paycheck can be confusing, frustrating, or something you avoid altogether. After taxes, benefit deductions, and retirement contributions, it is common for your net pay to be close to half of your gross income, which understandably raises the question: Where is all my money going?
As financial planners, it is crucial to help our clients understand how their compensation works, where their dollars are flowing, and whether this supports their goals.
This article breaks down the major components of a physician paycheck and provides a real life example paystub.
1. Sources of Earnings
Physician compensation can include several components:
Base Salary: Guaranteed compensation.
Call Pay: Additional pay for covering nights, weekends, or holidays.
Bonuses: Often tied to RVUs, quality metrics, productivity, or group performance.
Imputed Income: Often from sign on or retention bonuses structured as forgivable loans that vest over several years. No new cash is received, but the amount increases your taxable wages.
Stipends: Compensation for teaching, administrative responsibilities, or leadership roles.
CME and Professional Allowances: Expenses covered or reimbursed by your employer.
2. Taxes
For physicians, taxes are often the single largest reduction from gross pay. High incomes push you into higher marginal tax brackets, and withholding rarely aligns perfectly with your true year-end tax liability.
Federal Income Tax: Withheld based on your W4 elections. This is only an estimate and may not match your final bill or refund.
State Income Tax: Rates vary widely. Some states have no income tax, while others use flat or progressive systems.
Local or City Tax: Applies in certain jurisdictions.
Social Security Tax: 6.2% on wages up to $176,100 in 2025. You will notice an increase in take-home pay after you reach this cap each year.
Medicare Tax: 1.45% on all wages, plus an additional 0.9% on wages above $200,000 (single) or $250,000 (married filing jointly).
3. Employee Deductions
This is where you have the most control. Your elections impact your taxable income, long-term retirement planning, and insurance coverage.
403(b) or 401(k): Pre-tax or Roth contributions. The 2025 limit is $23,500, and some plans offer additional after-tax contributions that can be used for a mega backdoor Roth strategy.
457(b) Plan: Often available at hospitals. It is important to know whether yours is governmental or nongovernmental, as the rules and risks differ.
Insurance Premiums: Your share of medical, dental, vision, disability, and life insurance premiums. Many are paid on a pre-tax basis.
Health Savings Account (HSA): Pre-tax savings for medical expenses, available if you are enrolled in a high deductible health plan.
Flexible Spending Accounts (FSA): Pre-tax contributions for healthcare or dependent care expenses.
4. Employer Paid Benefits
These benefits do not reduce your paycheck directly, but they represent real value within your compensation package.
Retirement Contributions: Matching or fixed employer contributions to your retirement plan (403b or 401k).
Insurance Premiums: Employer-paid portions of health, dental, vision, life insurance, and disability coverage.
HSA Contributions: Many employers contribute toward the annual HSA limit.
Why This Matters
Understanding your paycheck helps you see where your money goes, ensure you are maximizing benefits, plan appropriately for taxes, and build toward your long-term financial future.
