A self-employment tax guide for therapists

If you’re one of them, you already know the perks: more control, more flexibility, more ownership of your work. But that also means you’re responsible for managing the financial side of your business—including taxes, deductions, and compliance—whether you do it yourself or hire someone.

But here’s the real question: how many therapists in private practice can confidently say they truly understand self-employment taxes? Not many.

Because let’s be honest—no one covered quarterly tax payments or deductible write-offs in your licensing program. And yet, the IRS still expects you to figure it out.

The problem? When taxes fall to the bottom of your priority list, it can cost you—missed deductions, surprise tax bills, and cash flow stress that takes a toll on your practice. Without proper tax management, even the most successful practices can face financial strain.

This guide breaks down the essentials every self-employed therapist should know about taxes so you can stay compliant, reduce what you owe, and stay prepared for tax season.

Self-employment taxes—what every therapist needs to know

What is SE tax?

Self-employment taxes cover your contributions to Social Security and Medicare, the same way payroll taxes do for W-2 employees. While W-2 employees split these taxes with their employer, self-employed therapists are responsible for both halves.

As of 2024, the self-employment tax rate is 15.3%:

• 12.4% for Social Security (up to $168,600 of net income in 2024).

• 2.9% for Medicare (with an additional 0.9% surtax if your income exceeds $200,000 as a single filer). 

That brings the total SE tax rate to 15.3% on your net earnings—on top of federal and state income taxes. For example, if you bring in $80,000 in net income from your practice, you owe around $12,240 in self-employment tax alone (not including federal income tax).

Pre-licensed but contracting—Do you still owe SE?

If you’re a pre-licensed therapist working as an associate, intern, or practicum student under supervision, you might assume taxes are something to deal with after you’re fully licensed. Unfortunately, the IRS sees it differently.

Whether or not you have a license, if you’re getting paid as an independent contractor (typically via a 1099 form), you’re considered self-employed for tax purposes. And that means you’re subject to self-employment taxes—just like a fully licensed private practice owner. 

Many pre-licensed professionals work under the umbrella of a group practice or supervisor and think of themselves as “staff.” But if you’re not on payroll (W-2), and you receive payment without taxes withheld, the IRS considers you self-employed—even if:

• You don’t set your own hours.
• You work in someone else’s office.
• You’re under clinical supervision.
• You’re just starting out in the field.

What matters is how you’re paid, not your licensure status or job title. If you receive Form 1099-NEC at the end of the year, you’re expected to:

• Report your income on Schedule C
• Pay self-employment tax (15.3% on net income)
• File quarterly estimated taxes if you expect to owe more than $1,000

Also read: 1099 vs. W-2 forms: What’s the difference for employers?

Billing and tax complexities—why taxes are trickier for therapists

But how is that income actually tracked and taxed? That part is a bit tricky. 

Why? Because self-employed therapists often have more complicated revenue streams than many other professionals. Between insurance reimbursements, private pay, sliding scale clients, supervision gigs, and more—what you earn and what actually hits your bank account can feel out of sync. And when that gets muddled, so do your taxes. 

Let’s break down why your billing system can make or break your tax season—and how to make it work for you instead of against you.

Multiple revenue streams for therapists

Most self-employed therapists juggle multiple income types. Each affects how and when income is recorded, how much you owe in taxes, and how you should track your earnings.

1. Insurance reimbursements

With insurance clients, you don’t get paid immediately. You might bill after the session, wait 2–6 weeks (or longer) for reimbursement, and possibly have to appeal denied claims.

• Tax challenge: You earned the income when the session occurred, but you might not receive the funds until weeks or months later.

• Best practice: Use accrual accounting to accurately reflect when the income was earned. Otherwise, it’s easy to under-report quarterly earnings or forget income you haven’t received yet.

2. Private pay clients

Private pay is more predictable—you’re paid upfront or at the time of service, and there’s no middleman. This makes income tracking easier and gives you more control over your revenue.

• Best practice: Even if it’s easier to track, don’t rely solely on your payment processor (like Stripe or Square) for records. Use a separate bookkeeping system to log income by client and service.

3. Sliding scale sessions 

Almost 60% of therapists offer sliding scale sessions^[3], but it complicates income planning.

• Tax challenge: You may expect $100/session across the board but end up averaging $70 once sliding scale clients are factored in. That affects your tax estimates and cash flow.

• Best practice: Create a clear breakdown of client rates and track your average revenue per session each month to stay realistic about your actual earnings.

4. Additional services: supervision, consulting, workshops: 

Whether you’re offering supervision to associates, running CE workshops, or consulting for organizations, these income streams often fall outside your usual therapy schedule.

• Tax challenge: This income still gets taxed just like session fees—but it can be forgotten if it’s inconsistent or paid informally (like Venmo or Zelle).

• Best practice: Log every dollar you earn—especially from services outside your EHR system or practice software.

How to manage complex billing for multiple revenue streams

Here’s how you can make this process easier and efficient:

1. Use bookkeeping software that works for therapists

If you’re managing your own bookkeeping, use software like QuickBooks^[4] or Wave^[5] to keep things organized. Spreadsheets can work, but accounting software makes tracking income, expenses, and taxes much easier—and reduces the risk of errors.

You must track:

• Date of service
• Payment method (insurance, private pay, etc.)
• Amount billed vs. amount received
• Write-offs or unpaid claims

This helps you get an accurate snapshot of what you actually earned each month—and plan for taxes accordingly.

2. Reconcile your income monthly

Don’t wait until April to piece together a year’s worth of earnings. Set aside one day each month to:

• Review income vs. sessions held. 
• Update your expense tracking.
• Set aside your tax savings.

3. Separate personal and business finances

Use a dedicated business bank account, even if you’re a sole proprietor. It makes bookkeeping cleaner, reduces the risk of missing tax deductions, and helps you view your practice like a business—which it is. It also stops you from commingling business and personal funds, ensuring you stay compliant with the IRS. 

Also read: How personal bookkeeping prevents the risk of commingling funds

How and when to pay SE tax

Unlike W-2 employees who pay taxes gradually with every paycheck, self-employed therapists must pay estimated taxes four times a year.

Here are the IRS deadlines:

Quarter	Income period	Payment due date
Q1	January 1 – March 31	April 15
Q2	April 1 – May 31	June 15
Q3	June 1 – August 31	September 15
Q4	September 1 – December 31	January 15 (of the following year)

Each payment should cover your SE tax + income tax for that quarter based on your estimated earnings.

How to pay your estimated taxes?

• IRS direct pay (online): Pay directly from your bank account via irs.gov/payments. No account is needed.

• EFTPS (Electronic Federal Tax Payment System): Set up recurring payments or schedule ahead.

• Tax software: If you use software like QuickBooks Self-Employed^[6], it can automatically calculate your estimated taxes—and even help schedule payments to the IRS.

Just make sure you’re paying under the correct Social Security number or EIN (if you’ve formed an LLC or S-Corp).

Also read: Schedule SE (form 1040): Filing the self-employment tax form

Tax deductions you shouldn’t overlook

One of the biggest perks of being self-employed? Tax deductions. Many therapists either miss out on the deductions they’re entitled to or overdo it and get flagged for things that don’t actually qualify.

Here are the deductions that apply to therapists in private practice: 

1. Professional liability insurance

Also known as malpractice insurance, this is a must-have for most therapists—and a 100% deductible business expense.

2. License & renewal fees

Your annual licensing fee with your state board? Deduct it.

That ethics course you’re required to take every two years? That too.

3. Therapy tools & resources

This includes anything you purchase to directly serve clients, like:

• Workbooks, therapeutic games, or assessments
• Guided journals or online tools you provide to clients
• Apps you use as part of treatment (like subscriptions to meditation or CBT tools)

4. Clinical supervision (if you’re pre-licensed)

If you’re a pre-licensed therapist paying out of pocket for supervision while contracting or operating as self-employed, those supervision fees are deductible as a business expense.

5. Telehealth platforms

If you’re using a paid HIPAA-compliant video platform (like SimplePractice^[7], Doxy.me^[8], or Zoom Pro^[9] for Healthcare), that subscription counts as a deductible business tool.

6. Home office deduction

If you’re running your practice (or even just your admin work) from a dedicated home office, you may qualify to deduct:

• A portion of your rent/mortgage
• Utilities
• Internet
• Maintenance

But here’s the rule: The space must be used exclusively and regularly for your business.

Deductions can save you thousands—but only if your records are accurate. That’s where solid bookkeeping makes all the difference. When your books are handled by experts, you’re far less likely to miss out on legitimate write-offs that could lower your tax bill.

Also read: 7 key benefits of outsourcing bookkeeping for therapists

Different business structures and what’s best for therapists?

1. Sole proprietorship

What it is:

If you haven’t registered your business with your state or chosen a formal structure, you’re likely operating as a sole proprietor by default.

Tax implications:

• You report all your income and expenses on Schedule C of your personal tax return (Form 1040).
• You pay self-employment taxes (15.3%) on your net income.
• No payroll setup is required—you pay yourself from the business earnings.

Pros:

• Easiest to set up
• No formal registration is required
• Minimal paperwork

Cons:

• No liability protection—you and your business are legally the same
• Fewer options for tax deductions

Best for: Therapists just starting out or working part-time without many expenses.

2. LLC (Limited Liability Company): 

What it is:

An LLC separates your personal assets from your business, so if something goes wrong legally, your personal bank account and home are (typically) protected.

Tax implications:

• By default, an LLC is still taxed like a sole proprietor (single-member LLC).
• You still file a Schedule C and pay self-employment tax on your net income.
• But you can elect to be taxed as an S-Corporation later if it makes sense financially.

Pros:

• Liability protection
• Adds professionalism to your practice
• Easy to upgrade later to an S-Corp

Cons:

• Requires registration and annual fees
• Needs more admin than a sole proprietorship

Best for: Therapists growing their practice, expanding their clientele, or looking to protect personal assets while keeping tax filing simple.

3. PLLC (Professional Limited Liability Company):

What it is:

A PLLC is a specific type of LLC designed for licensed professionals like therapists, doctors, lawyers, and accountants. In states that require it, forming a PLLC allows you to maintain the benefits of limited liability protection while complying with state regulations for licensed professions.

Tax implications:

• Like an LLC, the PLLC can be taxed as a sole proprietorship (if you’re the only owner) or an S-Corp (if you elect this tax treatment).
• It allows you to separate your personal and business liabilities, providing that same liability protection we discussed earlier.
• You’ll file taxes just like an LLC—through Schedule C (as a sole proprietor) or via an S-Corp tax return (Form 1120S) if you elect that option.

Why therapists might choose it:

• In some states, a therapist must form a PLLC if they’re offering professional services, rather than a general LLC.
• It offers the same tax benefits as an LLC, including liability protection, but ensures that your business is compliant with state laws governing professional services.
• If you plan on growing your practice or collaborating with other professionals, a PLLC may be the better choice for maintaining clear legal boundaries.

4. S-Corporation (S-Corp): 

What it is:

An S-Corp isn’t a business structure itself—it’s a tax election you can make once you’ve formed an LLC (or corporation).

Tax implications:

You split your income between:

• A reasonable salary (on payroll, with taxes withheld), and
• Distributions, which are not subject to self-employment tax.
• You file a separate business tax return (Form 1120S) and issue yourself a W-2.

Pros:

• Potential to save thousands in SE taxes if you’re earning a high net income
• Professional image and structure
• Liability protection (via LLC or corporation base)

Cons:

• More complex to manage: You’ll need payroll, bookkeeping, and probably a tax expert.
• You must pay yourself a “reasonable salary,” which adds employer tax responsibilities.
• IRS scrutiny is higher—especially around how you split salary vs. distributions.

Best for: Therapists consistently netting $80,000–$100,000+ per year and can hire an in-house finance team (or outsource).

Also read: 4 types of business structures — and their tax implications

Now that you’ve got your business structure sorted and have a clearer understanding of your tax deductions and how they apply to your practice, the next step is preparing for tax season.

How to prepare for tax season

1. Stay organized year-round with accurate bookkeeping

The key to smooth tax filing is staying organized with your bookkeeping. Track every dollar of income and expense throughout the year. Instead of relying on software alone, focus on:

• Recording your revenue from all sources—clients, insurance reimbursements, and sliding scale fees.
• Tracking expenses like office rent, insurance, travel, and continuing education.
• Logging your mileage for any work-related travel, whether it’s to meet clients, attend workshops, or network.

Establish a routine to update your books regularly, ideally weekly or monthly. By staying on top of your financial records, you’ll save time and avoid scrambling when it’s time to file taxes.

Also read: The role of accurate bookkeeping in tax preparation and compliance

2. Set aside money for taxes

To avoid surprises, set aside about 25-30% of your income throughout the year for taxes. Keeping this reserved will help you avoid scrambling to pay your tax bill come April.

3. Quarterly estimated tax payments

As a self-employed therapist, you’ll need to pay quarterly estimated taxes for both income and self-employment tax. Use Form 1040-ES^[10] to estimate your payments based on your expected income. Missing these deadlines could result in penalties.

4. Plan ahead and don’t wait until the last minute

Start gathering your documents by January and aim to file at least a week before the April 15th deadline. Early preparation reduces stress and gives you time to review everything carefully.

The bottom line

Your billing methods, expenses, and even licensure status all impact how you’re taxed. And with so many moving parts in a therapist’s practice, there’s no one-size-fits-all approach. But one thing remains constant: organized, consistent bookkeeping makes everything easier.

Whether you’re just starting out or running a full-time private practice, your books are what keep your business financially stable. They make tax season manageable, help you capture every deduction, and give you a clear picture of where your money’s going.

But you didn’t become a therapist to spend hours tracking expenses and categorizing transactions. And you probably don’t have the expertise to get that right, either.

So, how do you make sure your books stay up-to-date and organized without having to hire an in-house professional that you probably can’t afford?

That’s where we come in.

At CoCountant, we provide expert bookkeeping services to therapists just like you at irresistible rates. We keep your books accurate, clean, and organized, and we make sure they’re audit-ready and aligned with the unique tax rules that therapists face. That means:

• Tracking income from insurance reimbursements, private pay clients, and telehealth platforms
• Categorizing expenses like EHR subscriptions, CEU courses, supervision fees, and office rent
• Flagging deductible write-offs you might otherwise miss
• Reconciling transactions regularly so nothing falls through the cracks
• Helping you stay on top of quarterly tax payments and cash flow planning

FAQs

What should I do if I miss a quarterly tax payment?

If you miss a quarterly payment, it’s important to make the payment as soon as possible to avoid penalties and interest. The IRS typically charges a penalty for late payments, but you can reduce the impact by catching up quickly.

How can I reduce my self-employment tax liability?

To reduce self-employment taxes, consider electing S-Corp status for your LLC or PLLC if you qualify. This allows you to pay yourself a reasonable salary and potentially reduce the amount subject to self-employment tax. Additionally, contributing to tax-advantaged retirement accounts like an SEP-IRA or Solo 401(k) can lower your taxable income, further reducing your tax liability.

How do I handle taxes if I subcontract or have independent contractors working for me?

If you hire independent contractors or sublet to other therapists, you’re responsible for providing them with a 1099-NEC form. This doesn’t affect your own self-employment tax, but it does create additional reporting responsibilities on your end. Be sure to keep accurate records of payments to avoid errors when filing.

How do I deal with taxes if I work as an employee and also run a private practice?

If you’re both employed and running your own practice, you’ll pay income tax on both your salary and self-employed income. Your employer will withhold taxes from your paycheck, but you’ll still need to handle your self-employment taxes for your private practice income. Make sure to pay attention to your estimated quarterly tax payments to avoid underpayment penalties.