Odd Lots · Friday, September 18, 2026
The current tax code incentivizes self-employed professionals, such as anesthesiologists, to structure their income through pass-through entities like S-corps to pay lower taxes than salaried employees in similar roles. This disparity arises because business income avoids payroll and Medicare taxes that apply to wages, a loophole that persists despite legislative changes.
“Yeah, so we are taxing salaries at a different rate than taxing business income. And so that anesthesiologist that runs most of the business through the S Corp, is not paying payroll tax, not paying like ACA sort of surcharge, which is uncapped Medicare tax on the profits that come through, which is maybe particularly galling because they're billing Medicare for so much services and they themselves on their mostly labor income aren't paying the Medicare tax on it.”
“So, you know, there is a minimum level of compensation, which the IRS rules say you're supposed to pay yourself in wages. So you pay payroll tax on that. everything above that reasonable compensation limit is kind of profit and just falls in this other bucket. And then in the 2017 reform, they brought down the pass-through rate even further from, say, the top rate of 37% to below 30%.”
“Whereas the surgeon that's working in the hospital system as a salaried worker is paying the top individual tax rate, 37%. The payroll tax, another 3%. You have all the state and local taxes. The cap on state and local tax deductions applies to that salaried worker. But if you run all your income through the business, then the states have allowed them to basically take the deductions through the business instead and get that uncapped.”