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What Do Therapists Need to Know About Taxes in Massachusetts?

Massachusetts therapists face one of the most layered tax environments in the U.S. With a state income tax, entity-specific filing requirements, and the new Millionaire’s Tax for higher earners, it’s important to set your practice up right and stay on top of compliance from day one.


Who this guide is for

This guide is for:

  • Licensed Massachusetts therapists (LICSWs, LMHCs, LMFTs, psychologists, etc.)
  • Solo or group practice owners
  • Clinicians offering in-person, telehealth, or hybrid services
  • Therapists looking to minimize tax risk and organize their practice

Step 1: Pick the right structure for your practice

Your business structure determines how you’re taxed and how you pay yourself.

Sole Proprietorship

  • No filing needed unless using a business name
  • No liability protection
  • All income reported on your personal tax return
  • Not recommended once your income or risk grows

PLLC (Professional LLC)

  • Not allowed in Massachusetts — licensed professionals may not form PLLCs
  • Instead, form a Professional Corporation (PC) or operate as a sole proprietor

S Corporation

  • Can reduce self-employment taxes by splitting income
  • Requires payroll, separate filings, and bookkeeping
  • Must elect S Corp status with both the IRS and Massachusetts
  • Still subject to Massachusetts corporate excise tax and state income tax

Professional Corporation (PC)

  • Common structure for licensed professionals in Massachusetts
  • Must register with the Secretary of the Commonwealth
  • Can elect S Corp status for tax savings
  • More admin but allows for growth and better liability protection

Step 2: Know your state tax obligations

State income tax

  • Flat tax rate of 5% on most personal income
  • An additional 4% surtax applies to income over $1 million (Millionaire’s Tax)
  • Applies to all pass-through business income
  • File with Form 1 (residents)

Corporate excise tax

  • Applies to S Corps and PCs
  • 2.95% on net income + $456 minimum excise
  • File Form 355S annually

Annual report

  • Required for corporations (PCs, S Corps)
  • File online with the Secretary of the Commonwealth
  • $125 fee, due annually on your formation anniversary month

Local taxes

  • Boston and other cities may require business certificates or permits
  • No separate local income tax

Step 3: Pay taxes throughout the year — not just in April

Estimated taxes

  • Required if you’ll owe $400+ to Massachusetts or $1,000+ to the IRS
  • Due quarterly: April 15, June 15, Sept 15, Jan 15
  • File with Form 1-ES or pay online through MassTaxConnect

Self-employment tax

  • 15.3% on net income for sole proprietors and default PCs
  • S Corps reduce this via W-2 salary structure
  • Still must pay state income tax and excise tax

Filing requirements

  • Sole prop: Schedule C + MA Form 1
  • PC/S Corp: Federal 1120-S + MA Form 355S + payroll returns + annual report

Step 4: Track and claim your deductions

Deductions are key to lowering your tax liability — especially in a high-tax state.

Deductible expenses for therapists

  • Rent or home office
  • Therapy platforms and EHR software
  • Malpractice insurance
  • Licensing fees, CEUs, supervision
  • Advertising and online listings
  • Phone, internet, business tools
  • Retirement contributions
  • Health insurance (self-employed)

Step 5: When it’s time to consider an S Corp

Once your net income crosses the $75K mark, it’s worth considering an S Corp.

  • Pay yourself a W-2 salary
  • Take the rest as distributions to reduce self-employment tax
  • Must handle payroll and file both federal and Massachusetts corporate returns
  • Also responsible for the state corporate excise tax

Step 6: Common mistakes therapists make

  • Trying to form a PLLC — not allowed in Massachusetts
  • Forgetting the annual report or corporate excise filing
  • Missing quarterly estimated payments
  • Waiting too long to elect S Corp when income rises
  • Not separating personal and business finances
  • Overlooking the Millionaire’s Tax when nearing $1M in earnings (includes business + other income)

Step 7: Our recommendations by income level

Net Income Range

Suggested Action

Under $50K

Sole prop or PC; track deductions carefully; avoid unnecessary admin

$50K–$100K

Consider S Corp election; prepare for excise tax; run clean payroll

Over $100K

Full S Corp setup; max out retirement; prep for 5% + 4% surtax exposure

Need help figuring this out?

We help Massachusetts therapists make sense of corporate excise tax, business structure rules, and how to set up their practice with long-term tax strategy in mind.

Book a consult or email us at david@leichtercpa.com

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.