Oklahoma physician guide
Buying into the group,
and what changes the day you are an owner.
Partnership is the raise that comes with a tax bill, a quarterly payment schedule, a new kind of retirement plan and a federal safe harbor to stay inside. Most of the surprises happen in the first April. This guide walks through what changes, with the statute, the regulation or the IRS notice next to each one, so the buy-in is a decision rather than a discovery.
What changes for a physician who buys into an Oklahoma practice or surgery center?
Three things. Your income arrives on a Schedule K-1 instead of a W-2, with no tax withheld, so you make quarterly estimated payments to the IRS and the Oklahoma Tax Commission; as a working owner of a medical partnership your share is self-employment income, and your practice income no longer qualifies for the § 199A deduction above $276,750 of taxable income ($553,500 joint) in 2026. The group can elect Oklahoma’s pass-through entity tax, which moves your state tax out from under the federal SALT cap. And as an owner you can adopt a cash balance plan on top of the 401(k), which for a physician at 50 can mean more than $200,000 a year of deductible retirement contributions on actuarial illustrations, provided the group’s staff are covered too.
Source: 26 U.S.C. § 1402 · 68 O.S. § 2355.1P-4 · IRS Notice 2025-67
Reviewed by Jeremy Baldwin, Founder & Private Wealth Advisor, Baldwin Financial, Oklahoma City. Last reviewed October 2026.
The rule
Five facts, each with its source.
Everything below comes from the Internal Revenue Code and regulations, the Oklahoma statutes, the federal safe-harbor regulation for surgery centers, and the IRS notice that set the 2026 limits. If a figure here ever disagrees with one of them, the source wins and we fix the page.
A working physician-partner’s K-1 is self-employment income. The Tax Court and two circuits have said so.
The limited-partner exclusion in § 1402(a)(13) is unavailable to a service partner in a health practice under the IRS’s own regulations, and the appellate courts have largely agreed: the Second Circuit affirmed Soroban in September 2026 and the Fifth Circuit decided K Alain the month before, each applying a functional test rather than the label on the interest, with a third appeal (Denham) still pending in the First Circuit. A partner who performs the services the practice sells is not a passive limited partner under any of them; your CPA applies the test to your facts. That means 12.4% Social Security tax on the first $184,500 in 2026, 2.9% Medicare on all of it, and 0.9% more above $200,000, with half of the Social Security and Medicare portions deductible. In an S corporation the same taxes apply to your salary, which the IRS expects to be reasonable for the work, and not to distributions.
Nothing is withheld, so four payments a year replace the paycheck’s deductions.
Federal estimated payments are due April 15, June 15, September 15 and January 15, and the safe harbor is 110% of last year’s tax for anyone whose prior-year income was over $150,000, which in the year you make partner is usually the cheapest target to hit. Oklahoma requires its own estimates once your state liability will exceed withholding by $500, with a safe harbor of 70% of this year’s tax or 100% of last year’s, and charges 20% a year on the shortfall. The first-year trap is simple: the W-2 you had until June paid in nothing on the K-1 income that starts in July.
Your practice income is a specified service business; the § 199A deduction is gone above $276,750.
Health is on the list of specified service trades, and for 2026 the 20% deduction phases out between $201,750 and $276,750 of taxable income for a single filer, $403,500 to $553,500 joint. Almost every attending owner is above it. A surgery center that does not employ the medical staff is a different matter: the regulations give the example of an outpatient surgical center that is not in the field of health, so an ASC K-1 can still qualify, subject to the wage and property limits.
The group can elect Oklahoma’s pass-through entity tax, and for owners above $505,000 it pays every year.
An electing partnership or S corporation pays Oklahoma’s 4.5% on its owners’ behalf, deducts it on the entity’s federal return under IRS Notice 2020-75, and the owners exclude the income on their Oklahoma returns. Because the federal SALT cap phases down to $10,000 for households above roughly $606,000 of income, as an illustration, a physician with $600,000 of K-1 income who could deduct little of the $27,000 of Oklahoma tax now gets up to the whole deduction at the entity level, worth up to around $9,500 a year at a 35% rate. The election is made on Form 586, binds every owner, and the 2025 federal law left it in place for medical groups. Our separate guide covers the mechanics.
Ownership opens the cash balance plan, and the limits for 2026 are large.
An owner can adopt a defined benefit plan alongside the 401(k). For 2026 the 401(k) allows $24,500 of deferrals, the overall defined contribution limit is $72,000 on compensation up to $360,000, and a defined benefit plan may fund a benefit of up to $290,000 a year at retirement. In a professional practice that has never had more than 25 active participants, the plan is exempt from PBGC coverage, which triggers a rule limiting profit-sharing to 6% of pay when a defined benefit plan is added. Actuarial illustrations put a 50-year-old physician’s annual cash balance contribution in the neighborhood of $180,000 to $200,000, on top of the 401(k) pieces.
The surgery center
The ASC investment: the safe harbor in plain terms.
Physician ownership of an ambulatory surgical center is lawful and common, and the federal anti-kickback statute protects it only inside a safe harbor at 42 C.F.R. § 1001.952(r). Oklahoma has no certificate-of-need requirement for surgery centers; its CON laws cover long-term care beds and psychiatric facilities only. An ASC does need a license from the Commissioner of Health. These are the safe harbor’s conditions that matter at the buy-in.
- The ASC is Medicare-certified and its operating and recovery space is used only for the ASC.
- At least one-third of each physician-investor’s medical practice income comes from performing procedures, measured over the prior year.
- In a multi-specialty ASC, at least one-third of each physician’s procedures are performed at that ASC. Single-specialty and surgeon-owned centers do not have this second test.
- Returns on investment are strictly proportional to capital invested, and the terms of the investment do not vary with referrals.
- Patients referred by an investor are told in writing of the investment.
- A loan or a loan guarantee from the ASC or any other investor to fund your buy-in. A bank loan is fine; a seller’s note from the center or a partner is not.
- Buy-in terms or distributions that track the volume or value of your referrals.
- Being bought in at a price below fair market value, or on terms other investors do not get.
- Ancillary services billed separately from the ASC’s own procedures.
- Falling below the one-third tests in a later year, which is why the group remeasures annually.
The trap
Three surprises that arrive after the buy-in.
All three are about the difference between income you earn and income you merely own, and each one shows up on a tax return before anyone explains it.
A hospital-employed physician who buys into a surgery center usually cannot fund a retirement plan on it.
If you stay on a hospital W-2 and own a slice of an ASC you do not manage, your ASC distributions are generally treated as a passive investor’s share, not self-employment income. That is pleasant for Social Security tax, and it also means the income cannot support a solo 401(k), a SEP or a cash balance plan, because those contributions can only be made from net earnings from self-employment. The Tax Court treated a plastic surgeon’s 12.5% ASC interest this way in Hardy. Passive business income is also net investment income, so the 3.8% tax applies above $200,000 of income, $250,000 joint.
A cash balance plan is only yours if it is also the receptionist’s.
Nondiscrimination testing means a plan that contributes six figures for the physicians must also contribute for the staff, typically 5% to 7.5% of pay between the gateway and top-heavy minimums. The affiliated service group rules in § 414(m) can also sweep a practice and the ASC it refers to into a single employer for testing, so a plan designed for the group alone may have to cover the center’s employees too. Price the staff cost before you price the physician benefit, and have the actuary run both entities.
A defined benefit plan is a commitment, not a one-year tax move.
The regulations say a plan implies a permanent rather than a temporary program, and abandoning it within a few years for anything other than business necessity is evidence it was never bona fide. Practitioners talk about three to five years; the IRS’s own safe zone in a 1972 ruling is ten. A group whose partners are near retirement, or whose income swings widely, should size the plan for the lean year, not the fat one, because the funding obligation arrives either way.
The decision
What to settle before you sign.
Read the operating agreement for three things: how the buy-in is priced and financed (a bank loan keeps you inside the ASC safe harbor; a note to the practice may not), what the buyout formula is when you leave, and whether the group has made or will make the Oklahoma pass-through entity election, because it binds you from the day you are an owner. Then look at the retirement plan documents: whether a cash balance plan exists, what it costs the staff, and whether you have a say in its design.
On the tax side, the first partner year is a cash-flow problem more than a tax problem. Open a separate account, move a fixed share of every distribution into it on the day it lands, and pay the four estimates from there; the calculator below gives a safe share. Ask the group’s CPA to run the 110% safe harbor off your last W-2 year, which is usually the cheapest way through the transition, and to confirm whether the group’s accountant or your own files the Oklahoma estimates.
On the planning side, ownership changes the answer to almost every question we would ask a hospital-employed physician: disability coverage now has to replace K-1 income, the retirement plan is something you design rather than join, and the practice itself is an asset with a value and a succession plan. That is the conversation we have with new partners, usually with the group’s CPA on the call.
Run your numbers
How much of each distribution to set aside.
Enter your expected ownership income, how the group is taxed, and your bracket. The calculator applies the 2026 Social Security wage base, Medicare and additional Medicare tax, and Oklahoma’s 4.5% rate at your top bracket, which deliberately overstates the income tax a little so the set-aside is safe. Nothing you enter leaves your browser.
- Self-employment and Medicare tax, roughly
- Federal and Oklahoma income tax, roughly
- Set aside each quarter
- Of each $1,000 of income
Questions we get
Asked often enough to answer here.
Is a physician partner’s K-1 income subject to self-employment tax?
For a working physician-owner of a partnership or LLC taxed as a partnership, yes. The limited-partner exclusion is not available to service partners in health practices under the IRS’s regulations, and the Second and Fifth Circuits confirmed in 2026 that the exclusion depends on whether you take part in running the business, not on the label on the ownership interest. In an S corporation, self-employment tax does not apply, but you must draw a reasonable W-2 salary before taking distributions.
Can a physician in Oklahoma own a surgery center?
Yes. Oklahoma has no certificate-of-need requirement for ambulatory surgical centers, and the center is licensed by the Commissioner of Health. The federal anti-kickback statute protects physician ownership inside the safe harbor at 42 C.F.R. § 1001.952(r), which requires among other things that one-third of your practice income comes from procedures, that returns are proportional to capital, and that neither the center nor another investor finances your buy-in.
How much can a physician contribute to a cash balance plan?
It depends on age and compensation, because the plan funds a benefit rather than a contribution. For 2026 the maximum annual benefit is $290,000 and the compensation limit is $360,000. Actuarial illustrations place a 50-year-old’s annual contribution around $180,000 to $200,000, a 55-year-old’s near $290,000, on top of the 401(k). The plan must also cover eligible staff, and in a group that has always had 25 or fewer participants, profit-sharing is limited to 6% of pay once the defined benefit plan is added.
Should a physician group make the Oklahoma pass-through entity election?
Usually yes, if most of the owners’ households are above about $505,000 of income, where the federal SALT cap phases down to $10,000, and the group does not expect loss years. The entity pays Oklahoma’s 4.5% on the owners’ behalf and deducts it federally; the owners exclude the income on their Oklahoma returns. The election binds every owner, so it is a group decision made with the group’s CPA on Form 586.
Does Baldwin Financial work with the group’s CPA and attorney?
Yes, and we prefer to. The buy-in is a legal document, the estimates and the election are the CPA’s domain, and the retirement plan needs an actuary. Our role is the plan that ties them together for you and your family: cash flow through the transition, insurance that replaces K-1 income, and the retirement design that fits your timeline. Baldwin Financial is a fee-only fiduciary adviser and is paid only by you.
An invitation
The buy-in is the group’s offer.
What it means for your family is the plan.
A complimentary conversation, by video, phone, or in person in downtown Oklahoma City, at a time that works for you. Nothing to prepare and nothing to bring. Come as you are; leave knowing more than you arrived with.
What the conversation looks like
- 01
You talk. What you own, what you owe, who depends on you, and whatever is coming up that you have not solved yet.
- 02
We tell you what we see. The two or three things we would look at first, and why those and not the rest.
- 03
You decide, on your own time. If we are not the right fit, we will say so and point you toward someone who is.
Or reach us directly
- Phone
- (405) 266-7856
- Meetings, by appointment
- 629 W. Main Street, Suite 10080, Oklahoma City, OK 73102
In person downtown, or by video - Serving
- Oklahoma City, Edmond, Nichols Hills, and clients who have moved away
This guide is educational and general. It describes federal and Oklahoma rules as published on the date shown in the footer, which can change, and it is not personalized tax, legal or investment advice. Baldwin Financial, LLC does not prepare tax returns, draft agreements or provide actuarial services; the terms of any buy-in, the anti-kickback analysis of any surgery center investment, and the design of any retirement plan should be confirmed with your attorney, CPA and plan actuary. Retirement contribution figures described as illustrations are actuarial estimates, not IRS limits. Insurance, where it is part of a plan, runs through a separate, disclosed entity, The Baldwin Insurance Firm, LLC, which may receive commissions; you are free to use any insurer, and nothing here is a recommendation of any insurance product. The calculator is an illustration and overstates income tax deliberately so that the set-aside is conservative.