Tax Strategies for W-2 Physicians and High-Income Employees

Why W-2 planning is different

Employed physicians cannot deduct work expenses, cannot choose an entity for their salary and cannot change how their wages are taxed. Planning focuses on pre-tax accounts, timing, investments and income outside the paycheck.

The strategies, in rough order

1. Use every pre-tax plan your employer offers

Defer the full $24,500 into the 401(k) or 403(b). If you have access to a governmental 457(b), defer another $24,500 there. Add catch-up contributions after 50 (these must be Roth for employees whose prior-year wages from that employer exceeded $150,000).

2. Fund an HSA through payroll

Payroll HSA contributions avoid federal income tax and Social Security and Medicare tax, grow tax-free and come out tax-free for medical costs. The 2026 limit is $8,750 for family coverage.

3. Backdoor Roth for you and your spouse

Contribute $7,500 each to a nondeductible traditional IRA and convert to Roth. Watch the pro-rata rule if you hold other pre-tax IRA balances. See backdoor Roth guide.

4. Mega backdoor Roth

If your plan allows after-tax contributions and in-plan conversions, you can contribute up to the $72,000 total limit and convert the after-tax portion to Roth.

5. Real estate

Short-term rentals with average stays of seven days or less, where you materially participate, are not passive under the tax rules, so depreciation (accelerated with cost segregation) can offset W-2 income. A non-physician spouse who qualifies as a real estate professional can do the same with long-term rentals. See real estate strategies.

6. Charitable planning

Give appreciated stock instead of cash, and bunch several years into a donor-advised fund to clear the standard deduction and the new 0.5% AGI floor.

7. Side income

Expert witness work, consulting, locums, telehealth and teaching paid on a 1099 open business deductions and a solo 401(k) employer contribution. See 1099 planning.

8. Tax-efficient investing

Asset location, tax-loss harvesting and municipal bonds in high-tax states reduce the tax on taxable investment accounts.

9. Location

Where you live and work determines state and city tax. Physicians who can choose between offers in different states should compare after-tax pay. See the state guide.

This article is for general educational purposes and is not tax, legal or investment advice. Tax law changes often and its application depends on your facts. Figures reflect 2026 rules as published by the sources listed above. Consult a qualified professional before acting. See our editorial policy.