What Taxes Does a New Pt Practice Pay? A Complete Guide
New PT practice owners face federal, state, and local taxes. This guide breaks down each tax type, rates, and deadlines for 2026.
Starting a physical therapy practice brings a new set of financial responsibilities, and taxes are among the most critical. You’ll owe federal income tax, self-employment tax (if you’re a sole proprietor or partner), state income tax, and possibly payroll taxes if you have employees. This guide covers each tax category, what you need to pay, and when, so you can budget accurately and avoid penalties.
Federal Income Tax
Your practice’s net profit (revenue minus deductible expenses) is subject to federal income tax. The rate depends on your business structure:
- Sole proprietorship or single-member LLC: Profits pass through to your personal return (Form 1040). You pay tax at your individual marginal rate, which ranges from 10% to 37% for 2026.
- Partnership or multi-member LLC: Profits pass through to partners, who pay at their individual rates.
- S corporation: Profits pass through to shareholders, but you must pay yourself a reasonable salary, subject to payroll taxes.
- C corporation: The corporation pays a flat 21% federal rate, and shareholders pay tax on dividends.
Most new PT practices operate as sole proprietors, LLCs, or S corps. You’ll report business income on Schedule C (if sole prop or single-member LLC) or Form 1120-S (if S corp).
Self-Employment Tax
If you’re a sole proprietor, partner, or LLC member (not taxed as an S corp), you pay self-employment tax to cover Social Security and Medicare. The rate is 15.3% of your net earnings: 12.4% for Social Security (up to the wage base, $176,100 in 2026) and 2.9% for Medicare (no cap). You can deduct the employer-equivalent portion (half) on your personal return.
If you choose S corp status, you pay payroll taxes only on your salary, not on distributions, which can save money. However, the IRS requires a reasonable salary, so consult a CPA.
State and Local Taxes
Most states impose an income tax on business profits. Rates vary widely:
- No state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming (and New Hampshire and Tennessee for some income).
- Flat rates: For example, Colorado (4.4%), Indiana (3.05%), Utah (4.65%).
- Progressive rates: California (1% to 13.3%), New York (4% to 10.9%), New Jersey (1.4% to 10.75%).
Some states also have gross receipts taxes (e.g., Texas franchise tax, Washington B&O tax). Check your state’s revenue department for specifics.
Local taxes: You may owe city or county taxes, such as a business license tax or a gross receipts tax. For example, New York City imposes a general corporation tax, and Los Angeles has a gross receipts tax. Contact your local tax authority.
Payroll Taxes
If you hire employees (front desk, PT aides, other therapists), you must withhold and pay payroll taxes:
- Federal income tax withholding: Based on employee W-4 forms.
- Social Security and Medicare (FICA): 7.65% from employee wages, matched by you (7.65%), for a total of 15.3%.
- Federal unemployment (FUTA): Up to 6% on the first $7,000 of each employee’s wages, but a credit reduces it to 0.6% if you pay state unemployment on time.
- State unemployment (SUTA): Rates vary by state and your experience rating, typically 1% to 6% of taxable wages.
You must deposit these taxes regularly (monthly or semiweekly) and file quarterly returns (Form 941).
Sales Tax
Physical therapy services are generally exempt from sales tax in most states, but you may owe sales tax on retail sales, such as selling braces, TENS units, or other products. Check your state’s rules. If you sell taxable items, collect sales tax and remit it to the state, usually monthly or quarterly.
Property Tax
If you own the building where your practice operates, you pay real property tax. If you lease, you may pay personal property tax on equipment (e.g., ultrasound machines, treadmills) in some states. The amount varies by location and assessed value.
Estimated Quarterly Taxes
Because taxes aren’t withheld from your income, you must pay estimated taxes quarterly. Use Form 1040-ES (individuals) or Form 1120-W (corporations). Deadlines for 2026:
- Q1: April 15, 2026
- Q2: June 15, 2026
- Q3: September 15, 2026
- Q4: January 15, 2027
To avoid penalties, pay at least 90% of your current year’s tax liability or 100% of last year’s liability (110% if your adjusted gross income exceeds $150,000).
Tax Deductions for PT Practices
Reduce your taxable income by deducting ordinary and necessary business expenses:
- Rent and utilities for your clinic space
- Equipment and supplies (e.g., treatment tables, resistance bands)
- Software subscriptions (EHR, billing, scheduling)
- Professional liability insurance and health insurance premiums
- Continuing education and licensing fees
- Marketing and advertising
- Vehicle expenses (if used for business, e.g., home visits)
- Home office deduction (if you have a dedicated space)
Keep accurate records and receipts. Consider using accounting software like QuickBooks or Xero.
Tax Deadlines at a Glance
| Tax | Form | Frequency | Typical Deadline |
|---|---|---|---|
| Federal income tax | 1040 (with Schedule C) | Annual | April 15, 2027 |
| Estimated tax | 1040-ES | Quarterly | April 15, June 15, Sept 15, Jan 15 |
| Self-employment tax | Included in 1040 | Annual | April 15, 2027 |
| Payroll tax | 941 | Quarterly | Last day of month after quarter |
| Sales tax | Varies | Monthly/quarterly | Varies by state |
| State income tax | Varies | Annual | Varies (often April 15) |
FAQ
Do I need to pay taxes if my practice hasn’t made a profit yet? Yes, you may still owe self-employment tax if you have net earnings above $400, even if you have a loss for income tax purposes. Also, you may need to file a return to report the loss, which can offset other income.
Should I incorporate as an S corp to save on self-employment tax? S corp status can save you money on self-employment tax, but it adds administrative costs (payroll processing, filing fees). It’s often beneficial once your net income exceeds $40,000 to $60,000. Consult a CPA.
What happens if I miss a quarterly estimated tax payment? You’ll likely owe a penalty based on the underpayment amount and time. The IRS calculates it on Form 2210. You can avoid penalties by paying at least 100% of last year’s tax (110% if high income).
Are therapy services subject to sales tax? In most states, no. But if you sell products like braces or exercise equipment, you may need to collect sales tax. Check your state’s department of revenue.
Related guides
- How Much Should a New Pt Practice Set Aside for Taxes?
- How to File Quarterly Estimated Taxes as a New Pt Practice
- S-Corp vs LLC for New Pt Practices: Which Saves More on Taxes?
The bottom line
New PT practices face a complex tax landscape, but you can manage it with planning. Start by tracking all income and expenses from day one, set aside a portion of each payment for taxes (25% to 35% of net profit is a good rule), and mark quarterly deadlines on your calendar. Work with a CPA who understands healthcare practices to ensure you’re compliant and taking advantage of every deduction. With a solid system, taxes become a manageable part of running your business, not a surprise at year-end.