- Michigan
What Do Therapists Need to Know About Taxes in Michigan?
Michigan may have a flat income tax, but the real complexity shows up in local taxes and entity decisions. If you’re a therapist in private practice — whether solo or in a group — this guide covers what matters: business structure, self-employment taxes, deductions, and how to avoid trouble with the IRS or state.
Who this guide is for
This guide is for:
- Licensed Michigan therapists (LMSWs, LPCs, LMFTs, psychologists, etc.)
- Solo practitioners, group practice owners, and independent contractors
- Providers working in person, online, or hybrid
- Clinicians who want to stay on top of tax deadlines and protect their income
Step 1: Pick the right structure for your practice
Your entity choice impacts how you’re taxed, how you’re protected, and how complicated your books become.
Sole Proprietorship
- Automatically applies if you don’t file anything
- All income is taxed on your personal return
- No personal liability protection
- No separate state filing required unless using a trade name (DBA)
PLLC (Professional LLC)
- Michigan allows licensed professionals to form PLLCs
- Offers personal liability protection
- Default tax treatment: pass-through
- Can elect S Corp status for tax savings
- File with the Michigan Department of Licensing and Regulatory Affairs (LARA)
S Corporation
- Reduces self-employment tax when set up properly
- Requires payroll, separate filings, and consistent compliance
- Becomes worthwhile when net income hits ~$75K or more
- Still subject to Michigan state and local income tax
Professional Corporation (PC)
- Also allowed for licensed professionals in Michigan
- Can elect S Corp treatment
- Slightly more admin than PLLC, more common for group practices
Step 2: Know your state tax obligations
State income tax
- Michigan has a flat income tax rate of 4.25% (2025)
- Applies to all personal and pass-through business income
- File with MI-1040
City income tax
- Some cities (e.g., Detroit, Grand Rapids, Flint) levy additional city income taxes
- Rates and filing requirements vary by city
- Must file a city tax return separately (e.g., Detroit Form 5118)
Annual statement
- PLLCs and PCs must file an Annual Statement with LARA
- $25 fee
- Due February 15 each year
Step 3: Pay taxes throughout the year — not just in April
Estimated taxes
- Required if you expect to owe $500+ to Michigan or $1,000+ to the IRS
- Due quarterly: April 15, June 15, Sept 15, Jan 15
- Use MI-1040ES or pay online through Michigan Treasury e-Payments
Self-employment tax
- 15.3% federal tax applies to all net income unless you run payroll
- Applies to sole props and default PLLCs
- S Corp can reduce this — if structured and maintained correctly
Filing requirements
- Sole prop: Schedule C + MI-1040 (and city tax return, if applicable)
- PLLC: Annual statement + MI-1040 + estimated taxes
- S Corp: 1120-S + Michigan Corporate Income Tax (CIT) Form 4891 if applicable + payroll + annual report
Step 4: Track and claim your deductions
Your deductible business expenses are key to lowering your federal and state tax bills.
Deductible expenses for therapists
- Rent or home office
- Scheduling, EHR, and billing software
- CEUs, licensing, supervision
- Malpractice and liability insurance
- Advertising and directories
- Phone, internet, supplies
- Health insurance (if self-employed)
- Retirement plan contributions
Step 5: When it’s time to consider an S Corp
The S Corp structure helps reduce your self-employment taxes and formalize your payroll — but it only makes sense past a certain income level.
- Pay yourself a W-2 salary
- Take distributions on remaining income (not subject to SE tax)
- Requires accurate payroll and quarterly filings
- Still taxed at 4.25% in Michigan, plus city taxes if applicable
Step 6: Common mistakes therapists make
- Ignoring local city income taxes
- Forgetting the annual statement due every February 15
- Electing S Corp status without running actual payroll
- Mixing personal and business expenses
- Missing deductions on CEUs, licensing, or office use
- Not filing separate city tax returns when practicing in Detroit or Flint
Step 7: Our recommendations by income level
Net Income Range Suggested Action
Under $50K Sole prop or PLLC; watch for city tax filing; file MI-1040ES
$50K–$100K Consider S Corp; set up payroll; track local taxes
Over $100K Full S Corp setup; plan for year-end strategy; CPA involvement ideal
Disclaimer: This guide is for informational purposes only and does not constitute legal, tax, or financial advice. While we make every effort to keep the content accurate and up to date, state laws and regulations can change without notice. You should consult a licensed professional in your state before making any decisions based on this information. Leichter Accounting Services is not liable for any errors or omissions, or for any actions taken based on the contents of this guide.
Need help figuring this out?
We help Michigan therapists sort through city income taxes, S Corp decisions, and deduction strategy — so you can spend less time on admin and more on your clients.
Book a consult or email us at david@leichtercpa.com