Transitioning from residency to your first attending position comes with big changes, especially for your taxes.
Watch now to learn how to keep your first-year taxes to a minimum, avoid surprises, and make smarter financial choices as you start your new career.
Transcript:
Transitioning From Residency to Attending: What to Expect for Your Taxes
So you’ve gotten the good news that you’re about to become an attending, and your income and paycheck are about to change—congratulations! But the other thing that’s about to change is your taxes.
I’m Ben Martinek with Bona Fide Finance, and we want to talk a little bit about income taxes and what you can do in your first year as an attending.
From Resident to Attending: The Big Income Jump
In your situation, you’ve been making less money as a resident, and you’re well aware of this.
The good news of less income is that you pay less in income taxes.
But when you step into your attending role, you’re now seeing a substantial increase in income—maybe two, three, or four times what you made as a resident. Perhaps even more, especially if you’re in a dual-physician household where both of you are transitioning from residency or fellowship.
You’ll need to adjust to a new baseline for your taxes. What may have worked previously for tax withholding will no longer be sufficient.
Common Tax Surprise: Not Enough Withholding
One common surprise in that first year relates to bonuses or the transition itself from low to high income. In your lower-income role, taxes were withheld based only on that income. Because we have a progressive tax system, as your income increases, each additional dollar is taxed at a higher rate. The withholding from your residency paycheck likely won’t be enough once your attending income kicks in.
If you receive a large sign-on bonus or relocation incentive, you may also not have enough taxes withheld. It may not cause immediate issues, but when you file your taxes, you could be surprised to owe thousands.
It’s not your tax professional’s fault, it’s simply that your withholding wasn’t adjusted for your higher income.
This is why it’s a good idea to have a tax projection done early, so you can plan ahead and avoid an unexpected tax bill.
Relocating? Don’t Overlook State and Local Tax Changes
If you’re relocating as part of your transition from residency to attending, you may face new state or locality taxes.
Changing your state of residence mid-year can complicate your return, especially if you end income in one state and start again in another.
There can also be tax planning opportunities in how income is allocated between the two states—something to review with your advisor.
Additional Tax Considerations for Physicians
As your income grows, additional taxes may apply, such as the Net Investment Income Tax or the Medicare surtax.
If your household income exceeds $200,000 (single) or $250,000 (married filing jointly), these surtaxes come into play and can impact your investment income.
Strategic Moves: Roth Conversions and Inherited IRAs
If you have any pre-tax money or have made pre-tax contributions while your income is still relatively low, consider whether a Roth conversion makes sense before your income spikes.
Or if you’ve recently received an inherited IRA, it might be beneficial to recognize that income now—before your attending salary increases—so it’s taxed at a lower rate.
Get Professional Help Navigating Physician Taxes
These situations can get complicated, and that’s where professional guidance makes all the difference. If you want peace of mind knowing your taxes are handled correctly, consider reaching out to me and my team at Bona Fide Finance.
Trust the professionals; this is what we do for a living.To schedule an introductory call, email hello@bonafidefinance.com.