How Much Should a New Np Practice Set Aside for Taxes?
Learn how much new nurse practitioner practices should set aside for taxes, including federal, state, and self-employment rates, plus practical steps to calculate and save.
If you are starting a nurse practitioner (NP) practice, one of the first questions you will face is how much to set aside for taxes. The short answer: plan to set aside 25% to 35% of your net income. This range covers federal income tax, self-employment tax, and state taxes, which vary by state and your personal tax bracket. This guide breaks down the numbers, explains why the percentage is what it is, and gives you concrete steps to avoid a surprise tax bill.
Why 25% to 35%?
As a self-employed NP, you are responsible for both the employee and employer portions of Medicare and Social Security taxes. This is called self-employment tax, and it totals 15.3% of your net earnings. On top of that, you pay federal income tax, which depends on your taxable income. For a new practice, your net income might be modest, but as it grows, your tax rate climbs.
Here is a realistic breakdown for a solo NP practice in 2026:
- Self-employment tax: 15.3% (12.4% for Social Security up to the wage base, plus 2.9% for Medicare, with an additional 0.9% if your income exceeds $200,000 single or $250,000 married filing jointly)
- Federal income tax: ranges from 10% to 37%, but most new practices fall into the 22% to 24% bracket after deductions
- State income tax: 0% to 13.3%, depending on your state (some states have no income tax, others have high rates)
So, if your net income is $80,000, your effective federal rate might be around 15% to 18%, plus 15.3% self-employment tax, plus state tax. That totals roughly 30% to 35%. If your net income is lower, say $40,000, the percentage might be closer to 25%.
How to Calculate Your Estimated Taxes
To get a precise number, you need to estimate your net profit. Net profit is your practice revenue minus deductible business expenses. Common deductions for an NP practice include:
- Office rent or home office deduction
- Malpractice insurance
- Continuing education and licensing fees
- Medical supplies and equipment
- Software subscriptions (EMR, billing, scheduling)
- Marketing and website costs
- Health insurance premiums (if you are self-employed)
- Retirement contributions (SEP IRA, solo 401(k))
Once you estimate your net profit, use IRS Form 1040-ES (Estimated Tax for Individuals) to calculate your quarterly payments. The form includes a worksheet that accounts for your expected deductions and credits. You can also use tax software or consult a CPA.
Setting Aside the Money: Practical Steps
1. Open a Separate Savings Account
Open a dedicated business savings account for taxes. Transfer a percentage of every payment you receive into this account. For example, if you decide on 30%, move 30% of each deposit immediately. This prevents you from spending money you will owe later.
2. Make Quarterly Estimated Tax Payments
The IRS expects self-employed individuals to pay taxes quarterly. The due dates are typically April 15, June 15, September 15, and January 15. If you do not pay enough, you may face penalties. To avoid this, calculate your estimated tax using Form 1040-ES and pay online via the IRS Direct Pay system or the Electronic Federal Tax Payment System (EFTPS).
3. Track Your Income and Expenses
Use accounting software like QuickBooks, Xero, or FreshBooks to track every transaction. This gives you a real-time view of your net profit, so you can adjust your savings rate if your income changes. Many software options integrate with your bank and credit card accounts, making it easy to categorize expenses.
4. Review Your Savings Rate Quarterly
At the end of each quarter, compare your actual net profit to your estimate. If you earned more, increase your savings percentage. If you earned less, you can lower it. This keeps you on track without over-saving.
State-Specific Considerations
State tax rates vary widely. Here is a quick comparison of state income tax rates for 2026 (top marginal rates for individuals):
| State | Top Marginal Rate | Notes |
|---|---|---|
| Texas | 0% | No state income tax |
| Florida | 0% | No state income tax |
| California | 13.3% | Highest state rate |
| New York | 10.9% | Includes NYC surcharge if applicable |
| Illinois | 4.95% | Flat rate |
| Colorado | 4.4% | Flat rate |
If you live in a state with no income tax, your savings rate can be lower, closer to 25%. If you live in a high-tax state like California, plan for 35% or more.
What If You Don’t Set Aside Enough?
If you underpay, you will owe the balance when you file your tax return. You may also face an underpayment penalty if you did not pay at least 90% of your current year’s liability or 100% of the previous year’s liability (110% if your adjusted gross income is over $150,000). The penalty is calculated based on the federal short-term interest rate, which is around 8% to 10% in 2026, plus a few percentage points. It is not a disaster, but it is an unnecessary cost.
To fix an underpayment, you can increase your next quarterly payment or make an additional payment before the deadline. The IRS allows you to pay more than the required amount at any time.
FAQ
Q: Can I pay taxes monthly instead of quarterly?
A: Yes, you can make monthly estimated payments as long as the total by the quarterly deadline meets the requirement. Many new practice owners find monthly transfers easier to manage.
Q: Should I incorporate to save on taxes?
A: An S-corporation can save on self-employment taxes because you pay yourself a reasonable salary and take the rest as distributions, which are not subject to self-employment tax. However, there are additional costs, such as payroll processing and filing fees. For a new practice earning under $100,000, the savings may not outweigh the complexity. Consult a CPA.
Q: What if I have a side job with taxes withheld?
A: If you have a W-2 job, your employer withholds taxes, which can reduce your estimated payments. You can adjust your W-4 to withhold more from your salary to cover your practice income, or you can make quarterly payments based on your total tax liability.
Q: Do I need to pay sales tax on my services?
A: In most states, medical services are exempt from sales tax. However, if you sell products like supplements or over-the-counter items, you may need to collect sales tax. Check your state’s department of revenue.
The Bottom Line
For a new NP practice, set aside 25% to 35% of your net income for taxes. This covers self-employment tax, federal income tax, and state income tax. Open a separate savings account, transfer a percentage of each payment, and make quarterly estimated payments. Track your income and expenses with software, and review your savings rate quarterly. If you live in a state with no income tax, you can lean toward the lower end. If you are in a high-tax state, aim for the higher end. By planning ahead, you avoid penalties and keep your practice financially healthy.