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Fam Pract Manag. 2001;8(4):13

The Practice Pearl titled “Tax Time” [Monitor, February 2001, page 17] was in error. Tax payers cannot decrease their 2.9 percent Medicare tax by claiming the first $100,000 of their income as salary and any subsequent earnings as bonuses, as originally reported in the Nov. 15, 2000, Physician's Money Digest. All wages are subject to FICA (Medicare and Social Security) taxes.

However, self-employed physicians can decrease their tax burden by incorporating their practices (as S-corporations) so that they receive salaries. The corporation would then pay a “reasonable” salary. Physicians would be entitled to all remaining money earned by the corporation, which would be characterized as S-corporation distributions and would not be subject to FICA taxes.


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