New York State presents one of the most challenging tax environments in the nation for high-income earners, and physicians are particularly affected by this burden. With marginal tax rates that can exceed 14% when combining state and local taxes, plus their federal tax obligations, medical professionals in New York face a complex web of obligations that can significantly erode their after-tax income.
The tax challenges facing high-income physicians go beyond headline rates. New York’s tax system includes layered income taxes, city-level taxes, and unfavorable federal interactions; most notably the cap on the SALT deduction. For physicians who’ve invested years in education and training to build successful practices, navigating and mitigating this burden is essential to long-term financial success.
New York’s tax structure can have a major impact on high-income doctors, and today, we’re outlining actionable strategies you can adopt to reduce that burden. From practice entity structure to advanced planning techniques, the tax strategies outlined here can help physicians retain more of what they earn without running afoul of tax laws.
New York State Income Tax Structure
As of 2025, New York’s personal income tax system includes nine brackets, topping out at 10.9%. But due to the state’s “benefit recapture” rules, high earners lose the benefit of lower brackets as their income rises, making the effective rate far steeper than the bracket chart suggests.
For physicians earning $500,000 or more, the bulk of income may be taxed at or near the top marginal rate. The effect is a de facto flat tax on most income above the six-figure mark. That alone can create a five-figure annual liability before city or federal taxes enter the picture.
New York City and Local Taxes
Physicians who live in New York City face an additional tax of up to 3.876%, raising their total marginal rate to over 14%. Yonkers imposes a similar local tax. These taxes are residency-based, making location planning especially important for physicians who work in multiple regions or have flexibility in where they live.
Even a small shift in residency status (for example, from Manhattan to Westchester County or from New York to Connecticut) can create meaningful savings. But for physicians rooted in NYC, aggressive tax planning is essential.
Federal Interaction and the SALT Cap
The One Big Beautiful Bill (OBBB) increased the federal SALT deduction cap from $10,000 to $40,000 per return starting in 2025, with a 1% annual inflation adjustment through 2029. However, for taxpayers with MAGI above $500,000 (or $250,000 if married filing separately), the cap is gradually phased out, dropping back toward $10,000 as income increases. By 2030, the cap reverts to $10,000 unless extended.
For physicians in high-tax states like New York, the expanded cap offers some relief, potentially reducing federal taxable income by up to $40,000. But for those with high MAGI, the phase-out sharply limits the benefit. Many will still face a combined effective tax rate exceeding 50%.
Entity Structure and S-Corp Optimization
Due to New York licensing rules, physicians typically form a Professional Limited Liability Company (PLLC) or a Professional Corporation (PC). Many elect to have the entity taxed as an S-Corporation to reduce self-employment taxes.
An S-Corp structure allows physician-owners to split income between salary (subject to payroll taxes) and distributions (not subject to self-employment tax). For example, if a physician pays themselves a reasonable $200,000 salary and takes an additional $200,000 as distributions, they may save over $30,000 annually in payroll taxes—assuming the salary is defensible under IRS guidelines.
This structure must be implemented with care: the IRS scrutinizes S-Corp salaries, especially in professional service firms. Salaries must be documented as "reasonable" based on services performed, industry benchmarks, and comparable compensation.
Learn More: S-Corp vs. PC vs. PLLC for Doctors: What’s the Best Entity Structure for Physicians?
New York's PTET Election
New York’s Pass-Through Entity Tax (PTET) enables S-Corps and partnerships to pay state income tax at the entity level. This effectively bypasses the SALT cap, as the tax becomes a fully deductible business expense for federal tax purposes.
Owners receive a credit on their personal NY returns, neutralizing double taxation. The PTET must be elected by March 15 each year, with estimated payments due shortly thereafter. For high-income physicians, this can unlock thousands in federal tax savings.
Planning ahead is critical. The election must be made annually, and income projections should be reviewed early to determine if the PTET election makes sense. In multi-member practices, all owners must agree to the election.
While the OBBB expands the individual SALT deduction cap, it does not eliminate the need for PTET planning. For high-income physicians, especially those above the MAGI phase-out thresholds, the PTET remains one of the most reliable ways to fully deduct state taxes. Even with the new cap, entity-level deductions often deliver greater and more predictable federal tax savings.
Dive Deeper: What Doctors in New York Can Deduct on Their Taxes in 2025
Practice-Level Planning and Deduction Timing
Physicians have access to a range of business deductions, but too often these go underutilized. Section 179 and bonus depreciation rules allow full expensing of equipment, software, furniture, and qualified leasehold improvements in the year they’re placed in service. Leasehold improvements such as new exam rooms, upgraded lighting, or remodeled waiting areas can often be deducted immediately if they meet certain criteria, rather than depreciated over many years. A $50,000 office renovation or equipment upgrade could result in an equivalent deduction this year—not spread over several.
Professional expenses such as CME, licensing fees, journals, dues, and conference costs are all deductible when substantiated. A qualifying home office, used exclusively for practice admin or telemedicine, can provide additional deductions, including a portion of rent, utilities, and internet.
Strategic timing of income and expenses also plays a role. Physicians expecting variable income year to year may benefit from deferring income (e.g., delaying year-end billing) or accelerating deductions into high-income years. The timing of bonuses, equipment purchases, leasehold improvements, or retirement contributions can help smooth income across tax years.
Retirement Plan Optimization
For practice owners, retirement plan design can produce massive tax deferral. Solo 401(k)s allow employee and employer contributions, reaching $70,000+ annually with catch-up provisions. SEP-IRAs and defined benefit plans can offer even greater shelter for physicians in peak earning years.
Defined benefit plans, in particular, are powerful for high-income, older physicians with consistent cash flow. Contributions may exceed $100,000 annually, depending on actuarial limits. These plans also create long-term wealth while producing immediate tax savings that often exceed 40% of contributions.
Geographic Tax Planning
Residency is one of the few levers that can eliminate state and local tax exposure altogether: but it isn’t an easy lever to pull. Physicians relocating to states like Florida or Texas must sever NY residency under strict rules. Simply buying a condo in Miami isn’t enough.
New York uses a two-pronged test based on domicile and statutory residency. Avoiding residency generally requires maintaining no permanent place of abode in NY and spending fewer than 184 days in the state per year. Audits are common and documentation must be meticulous.
For physicians who practice in multiple states or conduct telehealth, careful planning of physical presence, billing, and administrative location is essential. The tax savings can be substantial, but only if the change in residency is real and well-documented.
Compliance and Audit Risk
High-income physicians face heightened scrutiny from both the IRS and New York State. Common audit triggers include:
- S-Corp salary levels that are too low
- Excessive or poorly documented business deductions
- Unsubstantiated home office claims
- Questionable residency positions
Good documentation including receipts, calendars, travel logs, and salary studies, is the best defense. Taking conservative, well-documented positions ensures that strategies hold up under review.
Take Command of New York Tax Planning for Doctors with Revonary
New York’s high tax environment poses unique challenges for physicians, but also unique opportunities for those who plan ahead. By aligning practice structure, residency, compensation, and deductions, doctors can dramatically reduce their effective tax rate while building long-term financial strength.
At Revonary, we specialize in helping high-income medical professionals navigate these complexities. Whether you're optimizing an existing practice or launching a new one, we’ll help you uncover tax strategies for doctors that make a real difference.
Contact us today to schedule a consultation and see how proactive tax planning can work for your practice—and your future.
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