5 tax-efficient ways to increase your income

By Altelisha "Lisha" Taylor, MD, MPH
Published February 8, 2024

Key Takeaways

  • While many of us would jump at the chance to have a higher base salary or a larger bonus, it's important to remember that the more money you make, the more you'll pay in taxes each year.

  • Instead of standard pay increase, consider increasing your income in a more tax-efficient manner—utilizing tax-efficient investment accounts and negotiating additional funds for CME is a great start.

  • You can also advocate for additional paid vacation time each year, or a schedule that allows for more paid administrative time. Both of these are great options that allow you to work less with more “free time” when your employer turns down your request for a raise.

While doctors earn a high income relative to the general population, it also means they pay more in taxes (for some, this can mean as much as 40% of their income). If you find that your money isn’t going as far as you’d like, you might start thinking it’s time for a raise. 

Whether you are in the midst of contract negotiations, gearing up for a performance review, or planning to discuss compensation with your boss, think strategically about your request for a raise. Getting paid more in salary or as a productivity bonus is great, but may also result in a much higher tax bill.

Luckily, there are more tax-efficient methods to help you increase your income. Pursuing some of the methods I’ve outlined below can mean more money in your pocket.

Increase your retirement match 

A retirement match is when your employer gives you extra “free” money to put in your 401K or 403b (or TSP if you are in the military). As most employees can’t rely on a pension during retirement, they need to invest money into their own retirement fund, and many jobs will try to incentivize employees to make contributions to retirement accounts by offering a match up to a certain percentage of the employee’s salary. 

This match varies by employer, but is around 5% to 10% of your income, and it might be worth asking for a higher match percentage. 

The funds that your job contributes to your work retirement account as a match is tax-free to you in the year it is given. This money is then invested and grows over time, and you don’t have to pay taxes on it until you withdraw the money in retirement. 

Because you will likely have lower taxable income when you retire as you won’t be working, the taxes you will pay on the amount you withdraw may be much less than the taxes you would pay on that money now. My point? Getting more money in the form of a retirement match saves you money in the long run. 

Related: 5 money mistakes to avoid in retirement

Ask for more paid time off (PTO)

If your job won’t increase your salary, or if budget cuts have prevented your employer from offering you a raise, you can try to negotiate for more PTO. The same salary with more PTO means you are effectively getting paid more to do less work. 

"This type of raise doesn’t cost you more in taxes, and instead allows you to buy back your most precious commodity—time."

Lisha Taylor, MD, MPH

I’ve seen some physicians start off with 3 or 4 weeks of paid vacation then successfully increase that to 5 weeks a year. Other physicians have been able to get more paid sick time and use it periodically for doctor’s visits for themselves and their kids. Some people have been able to advocate for more paid holidays each year, which allows them to take more time off without using vacation days. 

Related: 6 investment accounts to help you retire early

My point? Try to negotiate more paid time off, so you can maintain your income while spending less time working.

Restructure your schedule 

This is one of the things I did when I started as an attending. I had found a good job in my preferred city with people I knew I’d enjoy working with. There was just one problem: the pay. 

Related: 6 money mistakes to avoid as an early career attending physician

The job was in an academic setting, and there was only so much the department chair could offer me in salary starting out. 

Rather than accepting the lower pay, I got creative with my schedule. Normally, I’d work 4.5 days of clinic and have half of a day of administrative time. I was able to change that to 3 days of clinic per week with 1 full day for research and two half days of administrative time. 

Getting creative with my schedule not only allowed me to increase my pay per clinic day, it also allowed me to add some flexibility to my schedule regarding research while spending more time at home during my “admin time.” 

Can you try to negotiate something similar? Perhaps your job would be willing to give you an extra half day of admin time each week if they can’t pay you more in salary. You may even be able to “buy back” time by teaching medical students or residents.

Increase your CME allowance 

Most jobs tend to give physicians some sort of CME allowance each year, ranging from a few hundred dollars to a few thousand, along with some paid time off to accommodate the time to earn CME credits. Increasing this allowance is another creative way to get a tax-efficient raise.

As physicians, we use this money (and the CME days off) to go to medical conferences, pay for relevant subscriptions, maintain memberships in certain organizations, and purchase other products and services that help us stay up-to-date with medical advances. 

As money used for CME is usually reimbursed in full, increasing this allowance gives you access to additional tax-free funds. For example, if you got a raise of $5,000 at your job, you’d likely pay about 30% of it in taxes, meaning you’d only keep about $3,500. In contrast, if you coordinated an additional $5,000 in CME allowance, you would have access to the full $5,000 tax-free. 

You could use these extra funds to attend a medical conference in an area you’ve always wanted to visit. Many doctors have chosen to attend conferences in tropical locations, skills-training seminars or annual meetings near ski resorts, or wellness conferences aboard cruises in the Caribbean. 

Because CME money will typically cover hotel costs, many physicians choose to invite their friends or family to come along for the experience. My point? Securing additional funds each year from your employer for CME gives you access to tax-free money that you may be able to use to fund an expensive trip or travel experience.  

Utilize pre-tax deductions and investment accounts 

The more money you put in pre-tax accounts, the less money you pay in taxes each year. An example of this is a flexible spending account (FSA).

Generally speaking, there are two types of FSAs. There is a healthcare FSA, which is open to people with comprehensive health plans and can be used to pay for out-of-pocket healthcare expenses, such as co-pays, prescriptions, and other supplies, tax free. 

The other type of FSA is a dependent care FSA. This type allows you to save money in taxes on things like childcare or daycare expenses, along with any nursing home care you may be paying for aging relatives. 

Another pre-tax account to consider is a health savings account (HSA). This is an investment account that allows people with high-deductible health plans to invest money tax free, grow it over time, and earn a profit, which can then be withdrawn (tax free) to pay for healthcare expenses. 

You can also consider pre-tax work retirement accounts (like a 403b) along with deferred compensation accounts (like a 457b) which allows you to invest pre-tax money to both save you money that year and build wealth more quickly. 

What this means for you

While none of us would turn down the chance to have a higher base salary or a larger bonus, there are more tax-efficient methods to increase your income. Some of these include negotiating a higher retirement match, securing more paid time off, and increasing your CME allowance (the latter of which could even help pay for vacation travel). Remember, it’s not always about how much money you make, it’s about how much money you keep. Finding ways to increase your income, without increasing your tax bill, could help keep more of your hard-earned money in your pocket. 

Read Next: From residency to retirement: How compensation changes over a physician’s career
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