What Taxes Does a New Np Practice Pay? A Complete Guide

2026-08-21

Learn the federal, state, and local taxes a new NP practice must pay, with realistic 2026 rates, deadlines, and practical steps to stay compliant.

Starting a nurse practitioner (NP) practice is exciting, but the tax landscape can feel overwhelming. You will owe several types of taxes at the federal, state, and sometimes local level. This guide breaks down each tax, what it applies to, and how to handle it in your first year.

Federal Income Tax

Your practice’s structure determines how you pay federal income tax. Most new NP practices choose either a sole proprietorship (or single-member LLC) or an S-corporation.

Sole proprietorship / single-member LLC: You report business income on Schedule C of your personal Form 1040. You pay income tax at your individual marginal rate, which ranges from 10% to 37% for 2026. The average NP practice owner in the 22% to 24% bracket pays roughly $22,000 to $24,000 in federal income tax on $100,000 of taxable profit.
S-corporation: The practice files Form 1120-S, but income passes through to your personal return. You must pay yourself a “reasonable salary” (typically $80,000 to $120,000 for an NP), which is subject to payroll taxes. Remaining profits are not subject to self-employment tax, but you still pay income tax on them.

Practical step: If you are a sole proprietor, set aside 25% to 30% of every deposit into a separate savings account for taxes. If you are an S-corp, work with a CPA to determine your salary before your first payroll run.

If you are a sole proprietor or single-member LLC, you pay self-employment tax of 15.3% on your net earnings. This includes 12.4% for Social Security and 2.9% for Medicare. For 2026, the Social Security portion applies to the first $176,100 of net earnings. Above that, you pay only the 2.9% Medicare tax, plus an additional 0.9% if your income exceeds $200,000 (single) or $250,000 (married filing jointly).

For an NP practice with $120,000 in net profit, self-employment tax is about $18,360. You can deduct half of this on your personal return, but it is still a significant cash outflow.

Practical step: Use IRS Form 1040-ES to make quarterly estimated payments. The due dates are April 15, June 15, September 15, and January 15 of the following year. If you miss a payment, you may face a penalty.

Payroll Taxes (If You Have Employees or Are an S-Corp)

If you hire staff (medical assistants, front desk, other NPs), you must withhold and pay payroll taxes. As an employer, you pay:

Social Security: 6.2% of each employee’s wages (up to the wage base)
Medicare: 1.45% of all wages
Federal unemployment (FUTA): 6% of the first $7,000 per employee, but you get a credit for state unemployment taxes, so the effective rate is often 0.6% to 6% depending on your state

You also withhold the employee’s share (7.65% total) from their paychecks. These taxes are reported quarterly on Form 941 and paid through the Electronic Federal Tax Payment System (EFTPS).

Practical step: Register for an EIN (Employer Identification Number) on IRS.gov if you have not already. You will need it to open a business bank account and file payroll taxes.

State Taxes

Most states impose additional taxes on businesses. The most common are:

State income tax: If your state has one (43 states do), you will pay tax on your practice’s net income. Rates range from 0% (in states like Texas and Florida) to 13.3% (California’s top bracket). Many states follow federal rules, but some have different deductions.
State payroll taxes: You may owe state unemployment tax (SUTA) and, in some states, disability insurance. Rates vary widely; for example, California’s disability insurance rate is 1.1% of wages, while Oregon’s is 0.7%.
Sales tax: In most states, medical services are exempt from sales tax. However, if you sell retail items (e.g., supplements, over-the-counter products), you may need to collect and remit sales tax. Check your state’s Department of Revenue.

Practical step: Visit your state’s revenue department website and search for “nurse practitioner business taxes” to find a state-specific guide. Many states have a small business tax handbook.

Local Taxes (City or County)

Some cities and counties impose their own taxes on businesses. Examples include:

Business license tax: A flat fee or a percentage of gross receipts. For example, Los Angeles charges $50 to $500 per year based on revenue; New York City’s general corporation tax is 8.85% of income.
Gross receipts tax: Some localities tax total revenue, not profit. New Mexico has a gross receipts tax of 5.125% to 8.5% depending on the location.
Property tax: If you own your office building, you pay property tax. If you lease, you may still pay a share through your rent.

Practical step: Search your city or county website for “business tax” or “occupational license.” You can also call the local tax collector’s office to ask what applies to a healthcare practice.

Estimated Quarterly Payments: How to Avoid Penalties

The IRS requires you to pay taxes as you earn income. If you expect to owe more than $1,000 in federal taxes, you must make quarterly estimated payments. The safe harbor rule: pay at least 100% of last year’s tax liability (or 110% if your adjusted gross income was over $150,000) to avoid penalties.

For a new practice, calculate your estimated tax using Form 1040-ES. A simple method: estimate your net profit, multiply by 92.35% (to account for the self-employment tax deduction), then apply your marginal income tax rate plus 15.3% for self-employment tax.

Example: If you expect $100,000 in net profit and are in the 22% tax bracket:

Income tax: $100,000 × 22% = $22,000
Self-employment tax: $100,000 × 92.35% × 15.3% = $14,129
Total estimated tax: $36,129, or about $9,032 per quarter

Practical step: Open a separate business checking account and transfer 30% of each deposit into it. Use that money to pay quarterly taxes.

Tax Deductions Every NP Practice Should Track

You can reduce your taxable income by deducting legitimate business expenses. Common deductions for NP practices include:

Malpractice insurance: Premiums are fully deductible.
Continuing education: Courses, conferences, and certifications (including travel) are deductible.
Office rent and utilities: If you lease a space, deduct rent, electricity, internet, and phone.
Equipment and supplies: Exam tables, computers, software, and medical supplies are deductible. Under Section 179, you can deduct the full cost of equipment up to $1,220,000 in 2026.
Professional fees: Accounting, legal, and billing services.
Marketing: Website, ads, and patient outreach.
Vehicle expenses: If you drive for business, use the standard mileage rate of 67 cents per mile (2026) or actual expenses.

Practical step: Use accounting software like QuickBooks or Xero to track expenses in real time. Scan every receipt and categorize it immediately.

FAQ

Q: Do I need to charge sales tax on patient visits?

A: In virtually all states, medical services are exempt from sales tax. However, if you sell retail products like supplements or durable medical equipment, you may need to collect sales tax. Check with your state’s revenue department.

Q: What if I don’t make a profit in my first year?

A: You still need to file a tax return, but you may owe no income tax if you have a loss. You can carry the loss forward to offset future profits. However, you may still owe self-employment tax if you have net earnings, and you must file payroll taxes if you have employees.

Q: Can I deduct health insurance premiums for myself?

A: Yes, if you are self-employed, you can deduct health insurance premiums for yourself, your spouse, and dependents. This deduction is taken on Form 1040, not on Schedule C, and it reduces your income tax but not your self-employment tax.

Q: Should I hire a CPA or use tax software?

A: For a new practice, a CPA is worth the cost (typically $300 to $600 per year for a simple return). They can help you choose the right entity, set up payroll, and avoid costly mistakes. Software like TurboTax Self-Employed costs about $120, but it won’t provide proactive advice.

The Bottom Line

Your new NP practice will face federal income tax, self-employment tax, and possibly state and local taxes. The exact amount depends on your structure, location, and profitability. Start by tracking every expense, setting aside 30% of revenue for taxes, and making quarterly estimated payments. Work with a CPA who understands healthcare practices to ensure you take advantage of all deductions and stay compliant. With a solid system in place, taxes become a manageable part of running your practice, not a source of stress.