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What Do Therapists Need to Know About Taxes in New Jersey?

This guide gives licensed therapists in New Jersey a clear path through the tax maze — whether you're forming your first private practice or making your existing business more tax-efficient. From legal structure to deductions, here’s what you need to know.


Who this guide is for

This resource is built for:

  • LCSWs, LMFTs, LPCs, psychologists, and other licensed mental health professionals
  • Therapists running solo or group practices, either full-time or part-time
  • Clinicians providing in-person or telehealth services in New Jersey
  • Anyone looking to avoid tax mistakes and keep more of their income

Step 1: Pick the right structure for your practice

Your business structure affects your taxes, liability, and how much paperwork you’ll need to handle.

Sole Proprietorship

  • No formal registration required
  • Personal and business income are the same
  • You pay self-employment tax on all net income
  • Simple, but no liability protection

LLC / PLLC

  • New Jersey allows licensed professionals to form PLLCs
  • Offers personal liability protection
  • By default, taxed as a sole proprietorship
  • Can elect S Corp status later for tax savings
  • Filing with the Division of Revenue and obtaining a professional license approval is required

S Corporation

  • Reduces self-employment tax by splitting income into salary + distributions
  • Requires payroll, separate tax filings, and compliance with NJ business entity rules
  • Makes sense at $75K+ in net income
  • Still requires annual filing and business tax payments to NJ

Professional Corporation (PC)

  • Also allowed in NJ for licensed professionals
  • More admin and less flexible than a PLLC for solo practices
  • Often taxed the same as S Corps if elected

Step 2: Know your state tax obligations

State income tax

  • NJ has a progressive tax rate from 1.4% up to 10.75%
  • Applies to all personal and pass-through business income
  • You’ll file a personal income tax return plus potentially a business return depending on structure

Franchise tax / minimum business tax

  • NJ doesn’t have a traditional franchise tax like CA, but:
  • S Corps and LLCs with elected corporate status must pay a minimum CBT (Corporation Business Tax), starting at $500
  • Even sole proprietors must register with the Division of Revenue if collecting sales tax or having employees

Local taxes and permits

  • Some cities may require a local business license
  • Zoning permits might be required if you’re working from home
  • Local health department rules may apply for in-person therapy spaces

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

Estimated taxes

  • Due quarterly: April 15, June 15, September 15, January 15
  • Required if you expect to owe $1,000+ in total taxes
  • Make payments to both the IRS and the NJ Division of Taxation

Self-employment tax

  • Applies to all net business income if you’re a sole prop or default LLC
  • Total is 15.3% (federal only — NJ has no separate SE tax)

Filing requirements

  • PLLCs and PCs must file annual reports with NJ and maintain good standing
  • S Corps must file NJ CBT-100S and pay minimum tax
  • Quarterly estimated payments required by both federal and NJ tax authorities

Step 4: Track and claim your deductions

Deductible expenses for therapists

  • EHR and practice management software
  • License renewals, supervision, CEUs
  • Office rent or home office %
  • Marketing: listings, websites, ads
  • Phone, internet, office supplies
  • Malpractice and liability insurance
  • Health insurance premiums (if self-employed)
  • Retirement contributions (Solo 401k, SEP IRA)

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

  • Netting more than $75,000? Time to talk to a CPA
  • You’ll pay yourself a salary and distribute the rest as profit
  • This reduces self-employment tax but adds complexity
  • Payroll, corporate filings, and bookkeeping are required
  • Still likely to save thousands annually at the right income level

Step 6: Avoid common mistakes therapists make

  • Forming a regular LLC instead of a PLLC
  • Missing quarterly tax payments
  • Staying a sole proprietor too long
  • Not running payroll after electing S Corp
  • Failing to file the required NJ CBT-100S as an S Corp
  • Ignoring city or zoning rules for in-home offices

Our recommendations by income level

Net Income Range

Suggested Action

Under $50K

Sole prop or PLLC, track expenses, make quarterly payments

$50K–$100K

Consider S Corp election, evaluate payroll software, hire a tax pro

Over $100K

Run full S Corp setup, set up retirement savings, do quarterly tax reviews

Need help figuring this out?

We work with therapists across New Jersey to simplify tax decisions, keep them compliant, and help them keep more of what they earn. If you're unsure how to set things up, we’ll walk you through it step-by-step.

Book a consultation 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.