What Do Therapists Need to Know About Taxes in Pennsylvania?

Running a therapy practice in Pennsylvania means more than just setting up shop — you’ve got state-specific tax rules, filing requirements, and business structures to navigate. This guide breaks it down so you can focus on your clients, not your paperwork.

Who this guide is for

This resource is for:

LCSWs, LMFTs, LPCs, psychologists, and licensed therapists in Pennsylvania
Solo or group practice owners
Therapists offering services in-person, online, or hybrid
Anyone who wants to legally reduce their tax burden while staying compliant

Step 1: Pick the right structure for your practice

Your legal structure affects your taxes, liability, and admin work. Here’s what therapists in PA typically use:

Sole Proprietorship

No registration required (except a local license in some cities)
Income is taxed on your personal return
All net earnings subject to self-employment tax
No liability protection

LLC / PLLC

Pennsylvania does allow licensed professionals to form PLLCs
Offers legal separation between personal and business assets
By default, taxed as a sole proprietorship or partnership
You can elect S Corp status later for tax savings
Must register with the PA Department of State and licensing board

S Corporation

Helps cut self-employment tax by splitting income (salary + distributions)
Requires payroll setup, corporate tax filings, and good bookkeeping
Most beneficial once you're netting $75K or more
Still taxed at the flat 3.07% Pennsylvania personal income tax rate

Professional Corporation (PC)

Permitted for licensed professionals
Can be taxed as a C Corp or elect S Corp treatment
More rigid and typically used for larger group practices

Step 2: Know your state tax obligations

State income tax

Flat 3.07% rate on all taxable income and 7.99% for corporate income tax
No brackets — everyone pays the same rate
Pass-through income from LLCs, PLLCs, and S Corps is taxed at the personal level

Local income tax (important in PA)

Most PA residents owe local Earned Income Tax (EIT)
Rates vary by municipality (typically 1–3%)
Some cities (like Philadelphia) have Business Income & Receipts Tax (BIRT) and Net Profits Tax

Business licensing & fees

No state business license, but check local city or township rules
In Philadelphia:

Must register for BIRT and Net Profits Tax
Flat $300 annual license fee
5.99% Net Profits Tax for unincorporated businesses

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

Estimated taxes

Required if you’ll owe $1,000+ in combined federal and state tax
Due quarterly: April 15, June 15, Sept 15, Jan 15
Pay to both the IRS and PA Department of Revenue
Local EIT must also be paid (often via local collector)

Self-employment tax

Applies to all sole props, PLLCs, and default LLCs
Federal rate: 15.3%
PA does not have a separate self-employment tax

Filing requirements

Sole props: File Schedule C with Form 1040 and PA-40
PLLCs and PCs: Must file annual report and pay $70 fee
S Corps: File federal Form 1120-S + PA-20S/PA-65 (informational)

Step 4: Track and claim your deductions

To keep more of what you earn, you need to track eligible expenses and claim them properly.

Deductible expenses for therapists

Office rent or home office (exclusive use only)
Telehealth or EHR software subscriptions
Supervision, CEUs, license renewals
Internet, phone, business insurance
Marketing and ads (Google, Psychology Today)
Health insurance premiums (if self-employed)
Contributions to Solo 401k or SEP IRA

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

The S Corp model helps reduce taxes — but only if your income supports it.

Best when net profit hits $75,000+
You must run payroll for yourself as an employee
You’ll file a business return and W-2
Savings come from reducing the amount subject to self-employment tax
Doesn’t avoid state or local income taxes — those still apply

Step 6: Avoid common mistakes therapists make

Not accounting for local taxes (EIT, BIRT, Net Profits)
Skipping quarterly estimated payments
Staying a sole prop too long and overpaying taxes
Forgetting to elect S Corp when income justifies it
Poor documentation of business expenses
Forming a regular LLC instead of a PLLC when required

Our recommendations by income level

Net Income Range	Suggested Action
Under $50K	Stay as sole prop or PLLC; make quarterly payments; track expenses
$50K–$100K	Evaluate S Corp election; set up basic payroll; work with a CPA
Over $100K	Maximize deductions; implement full S Corp strategy; plan retirement contributions

Need help figuring this out?

We help therapists across Pennsylvania structure their practices, stay compliant with state and local rules, and save thousands in taxes every year. Whether you’re just starting or scaling up, we’ll help you get set up the right way.

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.