When it comes to physician pay, things can get a little nuanced. Many of us take out hundreds of thousands of dollars in student loans for med school, then spend 3 to 9 years getting additional training while being paid much less than we are worth. But after that time period, usually when we are in our 30s, things finally start to improve. We become “attending physicians” which means we are able to work fewer hours and enjoy a drastic increase in pay. As part of the compensation package, many of us will receive lucrative salary offers which include a sign-on bonus. Similar to professional athletes who sign new contracts, the physician sign-on bonus is an amount of money we receive, in addition to our salary, for agreeing to work for an employer for a certain length of time. This sign-on bonus can be a great addition to our wallet, but there are a few nuances we all should be aware of.
1. The amount varies based on specialty. Although most doctors get one, the amount we each receive can vary greatly. Doctors who work in primary care tend to get a lot less than doctors who specialize or perform more procedures. Doctors in private practice may get a lot more than others who are employed by academic centers. A report released by a consulting firm in 2021 showed that some doctors got a sign-on bonus of only $1,000 while others got $75,000.[1] Regardless of how much you are initially given, it is important to ask for more. Oftentimes, this is one of the things that employers will be willing to increase if you ask. The amount may vary from person to person but most employers are willing to increase the amount if you ask.
2. The amount you received is taxed (so you get less than you think). Many doctors see the sign-on bonus amount in the offer letter and think that is how much they will receive in their bank account. Unfortunately, the amount that is given to you is less than the amount on the contract. Why? Taxes. You have to pay taxes on this money and it is usually taxed at your ordinary income tax rate. If you are in the 35% tax bracket, then you’ll have to pay 35% in taxes. If you are in the 24% tax bracket, then you will have to pay 24% of it in taxes. In addition to federal taxes, many doctors will have to pay state taxes on the money as well. My point? Before you start thinking of all the ways you will spend your sign-on bonus, make sure you account for taxes. Also note, that the amount you pay in taxes depends on your tax bracket for the year (so the best time to receive the money is usually in the year you are in the lowest tax bracket).
3. There’s a chance you may have to pay it back. This usually comes as a surprise to many doctors, but it happens much more than you may think. Oftentimes when employers give you a sign-on bonus, it is not just free money for you to keep. Instead, it is often structured as a “forgivable loan.” This means that you get the money as a loan, and if you stay at the company for a certain length of time, usually 2 or 3 years, then the loan is forgiven and you get to keep all the money. However, if you leave the job prior to that set time period, then you have to pay the money back. The unfortunate thing about having to pay the money back is that they usually make you pay back the pre-tax amount. If your sign on bonus was $10,000, chances are you may have only gotten $7,500 after taxes, but if you leave before that set time period you will have to pay back the full 10,000 (the pre-tax amount).
4. You should negotiate how it is structured. To avoid having to repay the full pretax amount of your sign-on bonus if you leave before the stipulated time, negotiate how it is structured. Instead of having the full amount forgiven after 2 or 3 years, get a fixed amount forgiven each month that you are there. For example, if your sign on bonus states you have to stay at the job for 2 years to keep the money (or have the loan forgiven) then negotiate in the contract that 1/24 is forgiven each month. That way if you stay for 1.5 years you aren’t on the hook for the entire amount.
5. People receive it in different ways. To my surprise, there’s a good deal of variability in when a doctor actually receives his or her sign-on bonus. Some docs receive the full amount the day they sign the contract. Other doctors don’t receive the money until the first day they work. Some employers will split it up and give you half the first year and half the second year. There are others who will give you a small portion of it as a residency stipend to help supplement your income while you are still in training. My point? The timing on when you receive the sign-on bonus can vary greatly. Be sure you understand how yours works and negotiate a different structure if you’d prefer to get it sooner or later.
To summarize, there are quite a few nuances involved with physician sign-on bonuses. Make sure you understand how yours work and negotiate a different structure if you desire.