Tax Savings for Residents, 2025 Edition

Since residents earn in the upper five-figure range, it's easy for many to assume that tax optimization is a future-them problem.\

And yes, after years of training and little income, the jump to a real paycheck can feel like a relief. Until…you realize how quickly taxes can eat into your take-home pay.

That's why, even amidst the residency grind, it's worth it to take a step back and put a tax strategy in place.

This year (2025) offers a particularly timely window for smart tax moves. The One Big Beautiful Bill Act (OBBBA), signed into law in July, preserves much of the 2017 Tax Cuts and Jobs Act (TCJA), keeping resident-friendly features like the higher standard deduction and lower marginal rates intact.

Inflation adjustments to contribution limits, new IRS enforcement of proper 1099 work, and residency-specific deductions mean now is the right time to assess (or reassess) how you file, save, and plan.

How does the One Big Beautiful Bill Act Affect High-Income Individuals and Taxpayers? Click to find out.

How much are you really paying in taxes as a resident in 2025?

Most medical residents earn $60,000 to $75,000 annually, depending on location and program.

That lands you in the 22% federal marginal bracket, but your effective tax rate is lower due to the new $15,750 standard deduction for single filers, and $31,500 for joint filers.

For many, this higher standard deduction helps address the long-standing question of itemization. This dilemma is increasingly becoming a non-issue for early-career physicians. With the introduction of this more generous deduction under the OBBBA, the incentive to itemize has diminished considerably.

In fact, current estimates suggest that only 14.2% of taxpayers will itemize in 2025, compared to the nearly one-third who would have done so had the TCJA provisions expired without legislative intervention.

Unless you have significant unreimbursed medical expenses, mortgage interest, or donations, the math almost always favors taking the standard deduction. That makes tax prep easier and far less prone to error.

Student Loans

The student loan interest deduction remains one of the most practical and accessible tax breaks for medical residents in 2025.

According to the IRS, you can deduct up to $2,500 in eligible interest paid on student loans, even if you opt for the standard deduction.

For residents on income-driven repayment (IDR) plans, this deduction effectively lowers their adjusted gross income at a stage when every dollar matters.

The phaseout begins at a modified adjusted gross income (MAGI) of $80,000 up to $95,000 for single filers, and $165,000 up to $195,000 for joint filers, meaning that many residents are eligible.

Refinanced loans also qualify, provided that the original debt was used for qualified educational expenses.

In addition to interest deductions, there's another break that's been made permanent regarding employer-paid student loan assistance.

If your employer contributes to your loan repayment, you may exclude up to $5,250 annually from your taxable income

This is good news for those who are lucky enough to receive this benefit, as this provision was also set to expire next year.

Important Reminder: Like with many other tax provisions, you're not allowed to double-dip. So, if you are benefiting from one student loan tax break, chances are that the door to further deductions or exclusions is closed.

Retirement Contributions: Roth Reigns Supreme

Even today, the best move for residents is still a Roth IRA contribution, either directly or via a backdoor if you're moonlighting and exceed income limits.

Your income at this stage is low enough to pay taxes now, and let future withdrawals grow tax-free.

The current Roth IRA limit is $7,000, and full eligibility phases out at $89,000 MAGI (single filer). If you're married and filing jointly, the phaseout starts at $146,000.

You can also contribute to a 403(b) or 401(k) if your employer offers one. But traditional contributions reduce AGI, which might lower student loan forgiveness amounts under IDR, so a Roth is often the best option during residency.

Moonlighting and 1099 Income

For residents earning extra income through moonlighting or freelance work, being paid on a 1099 basis makes you a business owner in the eyes of the IRS.

This opens the door to some of the most powerful tax planning tools available during training.

A 1099 income allows you to deduct business-related expenses on Schedule C, including scrubs, CME fees, and even a portion of your phone bill, all expenses that wouldn't be deductible as a W-2 employee.

These deductions reduce your taxable income above the line, meaning they apply whether you take the standard deduction or not.

If you moonlight even modestly, this setup can save you hundreds in taxes. As your income grows, you may qualify to contribute to a Solo 401(k) or SEP IRA, shielding a significant portion of your side income from taxation.

That said, 1099 income doesn't come with automatic withholding. You'll be responsible for making quarterly estimated tax payments and covering the full 15.3% self-employment tax.

While forming an S-corp or LLC can mitigate some of this burden, it usually isn't worth the complexity unless you're raking in serious cash.

The bottom line is that if you treat moonlighting like a real business, it can be one of the smartest financial moves in your early career. That means tracking income, keeping receipts, and planning ahead.

Here's a list of some of the expenses you can deduct under 1099:

• Continuing Medical Education (CME): Courses, conferences, or board prep directly tied to your professional skills.
• Medical License Fees: Required licenses for practice. Deductible in the year paid.
• DEA Registration Fee: If needed for moonlighting work and not reimbursed by a W-2 employer.
• Scrubs and Lab Coats: Deductible only if not provided by your employer and used for 1099 work.
• Stethoscope and Medical Tools: Only for tools used for independent work, not W-2 employment.
• Cell Phone Bill (portion):  Pro-rate for work use and keep a log or use an allocation method.
• Laptop/Tablet: Deductible if used for scheduling, documentation, or patient communication.
• Professional Society Dues: Must be relevant to your moonlighting work. Not reimbursed.
• Job Search Expenses: Attending job search costs are deductible, while residency application costs are not.
• Mileage for Work Travel: This is deductible if traveling between job sites, not from home to a regular job.
• Malpractice Insurance (if needed): If not covered by the facility, this is a legitimate business expense.
• Office Supplies: Pens, notebooks, printing paper for 1099-related documentation or billing.

You can read about the Pros and Cons of Moonlighting During Residency here.

Childcare Credits

Parents who incur child care costs while working or attending school may qualify for a valuable tax credit.

Based on your income, the IRS permits a claim of 20%-35% of certain costs, capped at $3,000 for one child or $6,000 for multiple.

This credit can help offset the financial burden of daycare, babysitters, or after-school programs, as long as the care enables you to earn income or pursue education.

Tax Table

In 2025, navigating taxes can feel quite like threading a needle. The OBBBA retained many of the TCJA limitations, especially for W-2 employees.

However, certain deductions remain. Here's a quick snapshot of what's deductible and what's off the table for most residents this tax year:

The U.S. tax system doesn't offer residents particular treatment. Residents are employees, after all, and the same rules that apply to employees in other sectors apply here, too.

Yes, the tax code doesn't really feel generous, but in residency, time and tax brackets are unexpectedly on your side.

What feels like small potatoes now becomes foundational as time passes and your income grows. These tools for optimization aren't merely workarounds or loopholes; they're the only levers you get before your income pushes you into phaseouts and the IRS quietly takes a bigger bite.

This year isn't going to change the 80-hour weeks or the pressure of boards and budget takeout.

But it does offer a sliver of advantage for those paying attention. I would suggest you use it. Because once you're earning three times more, you'll find fewer clean wins, fewer overlooked deductions, and a much more crowded financial picture.

Residency is hard, and those hours are brutal. But if you lock in smart financial habits now, you'll carry that edge with you long after the grind is over.

If you've already made it through residency, I want to hear from you. What tax moves made a real difference? What mistakes do you wish you had avoided? Drop your advice below for those who are still in the thick of it. Your hindsight could be someone else's first step.

In case you missed it: 10 Harsh Money Lessons Every PGY-1 Resident Learns the Hard Way

FAQs

Q: What tax bracket are most medical residents in for 2025?

A: Most residents earn between $60,000 and $75,000, landing them in the 22% federal marginal tax bracket. However, thanks to the $15,750 standard deduction for single filers, the effective tax rate is significantly lower.

Q: Should I itemize or take the standard deduction?

A: For most residents, the standard deduction wins out. Only around 14.2% of taxpayers are projected to itemize under the new OBBBA rules. Unless you have major deductible expenses, the standard deduction is simpler and more beneficial.

Q: Is the student loan interest deduction still available in 2025?

A: Yes. You can deduct up to $2,500 of interest paid on qualified student loans, even if you take the standard deduction. This phases out for MAGI over $95,000 (single) or $195,000 (married filing jointly).

Q: Can I exclude employer-paid student loan help from my income?

A: Yes. Under the OBBBA, if your employer pays toward your student loans, you can exclude up to $5,250 annually from income. This break is now permanent and will adjust for inflation after 2026.

Q: Are work-related expenses like exam fees, scrubs, or license renewals deductible?

A: Not if you're a W-2 employee. Most residents cannot deduct these costs unless they have 1099 income from moonlighting, which qualifies them as self-employed for tax purposes.

Q: Is 1099 moonlighting income worth it despite the self-employment tax?

A: It depends. While 1099 income brings a 15.3% self-employment tax, it also opens doors to deduct business expenses (like CME, licensure, and equipment) and to contribute to retirement accounts like a Solo 401(k). Be sure to file quarterly estimated taxes to avoid penalties.

Q: What changed with 1099-K reporting rules?

A: The IRS originally proposed a $600 reporting threshold under the American Rescue Plan Act of 2021, but the OBBBA reversed this. As of 2025, the $20,000/200 transaction threshold remains in place, reducing the risk of minor side hustles triggering tax confusion.

Q: Are Roth IRA contributions deductible?

A: No, but they're still smart. You don't get a deduction, but you gain tax-free growth, which is ideal while your tax bracket is still relatively low in residency.