Founder Profile
C Corp vs S Corp for a Medical Practice
Physicians forming a practice face three constraints other founders do not: state professional-corporation statutes that restrict ownership to licensed professionals, the Personal Service Corporation flat 21% federal rate, and the QBI SSTB phaseout above $241,950 of taxable income.
Updated May 2026. Not tax, legal, or medical advice.
The verdict
PLLC or PC with S corp election in most cases.
State PC/PLLC formation requirements typically restrict entity choice. Within that constraint, S corp election saves on SE tax above a defensible salary. C corp PSC status produces flat 21% federal plus dividend tax, which is rarely better.
State PC/PLLC requirements come first
Most states require physicians (and other licensed professionals) to organize as a Professional Corporation (PC) or Professional Limited Liability Company (PLLC) rather than a generic corporation or LLC. Examples:
- California: Medical Corporation under the Moscone-Knox Professional Corporation Act (Cal. Corp. Code Section 13400 et seq.)
- New York: Professional Service Corporation under N.Y. Bus. Corp. Law Article 15
- Texas: Professional Association or PLLC under Texas Business Organizations Code Title 7
- Florida: Professional Service Corporation under Fla. Stat. Chapter 621
The PC or PLLC restricts share ownership to licensed practitioners of the same profession. The federal tax election (C, S, or partnership) is layered on top of the state professional entity, not instead of it.
The PSC flat 21% trap (C corp election)
A medical practice C corp is automatically a Personal Service Corporation under IRC Section 448(d)(2). PSC means a flat 21% federal corporate rate on every dollar of taxable income, with no graduated brackets.
For a physician netting $500k, C corp PSC pays $105k federal (21% flat) at the entity level. If the physician then distributes the remainder as dividends, the additional federal tax may exceed $94k at the 23.8% top qualified dividend rate plus NIIT. Combined federal effective rate around 40% on distributed earnings.
S corp election routes the income directly to the physician at personal rates (top federal 37%) and avoids the second layer of tax on distributions above a reasonable salary.
Source: 26 U.S.C. Section 448(d)(2)
QBI SSTB phaseout limits the S corp benefit at high income
Health is an SSTB (Specified Service Trade or Business) under IRC Section 199A. The 20% QBI deduction phases out between $241,950 and $291,950 single, or $483,900 to $583,900 joint (2026 inflation-adjusted thresholds).
A physician with $600k taxable income gets zero QBI deduction. The S corp benefit narrows to self-employment tax savings on distributions above the reasonable salary, typically $10k to $25k annually. Still positive, but smaller than the 20% deduction would have produced at lower income.
Source: 26 U.S.C. Section 199A
Retirement plan considerations may shift the math
High-earning physicians often contribute to defined benefit plans or cash balance plans that allow $200,000+ annual deductions. These plans require W-2 compensation as the basis for contribution limits, which favors S corp structure with high salary (rather than maxing distribution and minimizing salary).
For a physician contributing $250k to a cash balance plan, the optimal salary may be $300k or higher, dramatically reducing the SE-tax savings opportunity. At that point, the S corp benefit is minimal and a single-member PLLC taxed as disregarded entity (with the same retirement plan) may be simpler.
Malpractice and entity choice
Important caveat: the corporate or PLLC veil does not protect a physician from their own malpractice. Personal malpractice insurance is required regardless of entity. The entity may protect against general business liabilities (slip-and-fall, employment claims, vendor disputes). Consult your professional liability carrier and a healthcare attorney.
Sources
- 26 U.S.C. Section 448(d)(2) (PSC definition)
- 26 U.S.C. Section 199A (QBI SSTB)
- 26 U.S.C. Section 11 (corporate tax rate)
- State PC/PLLC statutes (verify with your state secretary of state or medical board)
Educational only. Medical practice entity choice involves state professional regulation, malpractice considerations, and retirement planning interactions. Consult a healthcare attorney and CPA.