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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
More than 1200 physicians in over 29 specialties discussed their tax bills and tax rates, recounted their experiences with auditors, and compared using a paid preparer with self-filing.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
In last year's report, the average federal tax bills were $76,117 for all physicians and $73,179 for doctors who were married and filing jointly. Federal income thresholds and tax rates are different for joint filers.
Many factors could come into play, including rising physician incomes. Plus, the Inflation Reduction Act of 2022 hiked average tax rates for some income brackets.
Other possibilities: Filers could no longer take an extra deduction for certain charitable contributions, in addition to the standard deduction. And enhancements to the child and dependent care tax credit expired.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
In last year's report, physicians on average said they paid $13,108 in state taxes. Joint filers said their state tax bill was $12,219 on average.
Forty-three states impose individual income taxes, and 41 states tax people's wage and salary income, according to the Tax Foundation.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
In both years that we posed this question, exactly three fourths of physicians answered "yes."
Perhaps high incomes for doctors bring greater dissatisfaction with how much goes to the government. CBS News and YouGov last year polled Americans across income levels and political beliefs; 47% of them said their tax bill was "about right" and 45% felt they paid more than their fair share.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
The marginal tax rate is the highest rate you will pay the federal government. In other words, after a certain amount of income, every dollar is taxed at X%. The highest federal bracket is 37%.
Physicians who are more interested in their overall tax nut can quickly calculate their effective tax rate. Divide your total tax by your taxable salary, capital gains, and other income sources. Both figures are on your Form 1040.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
About the same share of physicians as in last year's report (13%) were confident that their return included federal alternative minimum tax (AMT). The federal government imposes AMT to ensure that certain high-income households pay at least a minimum amount of tax, no matter how many deductions or credits they can claim.
AMT affects a minority of physicians. Less than 1% of all US households, and less than 2% of those with $500,000 to $1 million in income, owe AMT.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
Forty-six percent of income tax returns prepared and e-filed by individuals nationwide were submitted by taxpayers, according to the latest IRS 2023 data. So physicians seem in lockstep with the rest of the country on how frequently a tax professional's assistance is needed.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
As in last year's report, around two thirds of doctors felt that the workings of taxation in this country made logical sense. Even so, some respondents understood why other Americans might find the system incomprehensible.
"A flat tax would help everyone understand their tax situation and become better educated," one physician argued.
"The average citizen doesn't understand what's going on," another said.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
The odds of your being audited declined slightly last year, as the IRS struggled to get funding to hire more auditors and as a consequence examined fewer returns. And more of those exams were correspondence audits, which are less expensive for the government than in-person meetings.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
This survey question applied to both federal and state revenue agencies. In both years we posed this question, strong majorities of audited doctors said they were treated fairly.
Lots of factors play into those attitudes, which are not widely studied. The IRS published a report in which it examined perceptions of auditor fairness, by survey self-employed taxpayers. Some results:
Taxpayers who experienced a correspondence audit more often felt they were treated unfairly than did those who met in-person with auditors.
People who received an additional tax assessment after the audit expressed stronger feelings of anger and disapproval, and lower levels of trust in the IRS.
Positive attitudes actually were stronger among taxpayers who wound up with no change in what they owed than among people who got refunds. Perhaps, the IRS suggested, those who got refunds were frustrated that it took an audit to identify the refund.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
A number of finance professionals specialize in return preparation, as well as tax planning and accounting, for physician clients. A majority of physicians who had used a tax professional said it's important for that person to be experienced with the financial needs and profiles of doctors.
"One of the greatest values of using a tax preparer is that they have the best take on how aggressive to be in any given tax year," one respondent said.
"Our tax preparer is very strict [and] wants to avoid any potential tax audits," another added.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
These fees are about 18% and 25%, respectively, higher than what physicians told us in last year's report. In contrast, the average return preparation fee in the US for itemized federal and state returns is $323, according to the National Society of Accountants.
Fees charged to doctors' families can be driven up by income from a spouse's work or a physician's outside partnerships, business investments, and other factors.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
In last year's report, physician agreement was 86% for ease of the working relationship, 84% for convenience, 80% for doggedness in finding tax breaks, and 70% for fairness of the fee. Recall from the prior slide that doctors said their fees increased on average.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
We asked physicians who filed their own returns this year if they used one of the most popular e-filing programs in the US. Nearly all of them did, with a strong preference for Intuit TurboTax.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
Majorities of doctors experienced with e-filing software agreed with its benefits. But they gave packages high marks for ease of use (70% last year) or for time savings (65%) somewhat less often than in last year's report.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
The increasing popularity of charitable contributions (used by 54% in last year's report), even though taxpayers could no longer claim those breaks above the standard deduction, could indicate that many physicians' families itemize deductions.
Physicians also more actively claimed deductions for losses on business investments than in last year's report (when 13% of them did).
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
Physicians' level of optimism — or, rather, pessimism — was similar to that in last year's report. Similar majorities anticipated increases in income and capital gains taxes, at a time when the Biden Administration is suggesting higher top marginal income tax rates.
As was the case last year, only about 1 in 4 doctors think that federal taxes will stabilize or decrease.
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
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Medscape Physicians and Taxes Report 2023: Are You Paying Too Much?
Jon McKenna | July 13, 2023 | Contributor Information
Medscape Physician Compensation Report 2023: Your Income vs Your Peers'
Which specialties earn the most, and which physicians work the longest hours? Our 2023 Physician Compensation Report tells what's happening with doctors' income. Medscape Features Slideshows, Apr 2023
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Jon McKenna
Senior Editor, Reports, Medscape Business of Medicine
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