Client Playbook — Allied Health Professional
Occupational Therapist & Speech-Language Pathologist Tax Playbook 2026
OTs, SLPs, and PTs in private practice or contract work face a distinct tax profile: high continuing education costs, expensive specialized equipment, home health travel, and the choice between W-2 employment and 1099 contract work. This playbook covers every deduction and planning strategy for allied health professionals — whether employed, self-employed, or running their own practice.
$75K–$130KTypical OT/SLP Income Range
$72,0002026 Solo 401(k) Max
IRC §162Business Expense Authority
IRC §199AQBI Deduction Authority
Contract vs. W-2 Employment — The Tax Implications
Many OTs and SLPs work as 1099 contractors for home health agencies, school districts, or therapy staffing companies. The tax implications of contract work vs. W-2 employment are significant and often misunderstood by clients.
A W-2 OT earning $90,000 pays approximately $6,885 in employee FICA taxes (7.65% of wages). A 1099 OT earning the same $90,000 net pays approximately $12,716 in self-employment tax (15.3% on 92.35% of net earnings). The 1099 OT also deducts half of SE tax above the line ($6,358), reducing AGI. The net SE tax burden for the 1099 OT is approximately $6,358 more than the W-2 employee — but the 1099 OT can deduct business expenses, contribute to a Solo 401(k) or SEP-IRA, and potentially elect S-Corp status to reduce SE tax further.
| Factor | W-2 Employee | 1099 Contractor |
|---|---|---|
| FICA/SE Tax | 7.65% employee share | 15.3% SE tax (less ½ deduction) |
| Business expense deductions | None (suspended for employees) | Full Schedule C deductions |
| Retirement contributions | Limited to employer plan | Solo 401(k) up to $72,000 |
| Health insurance deduction | Pre-tax through employer | 100% above-the-line deduction |
| S-Corp election available | No | Yes — when net income exceeds ~$80K |
Key Deductions for OTs, SLPs, and PTs in Private Practice
| Expense | Deductible? | Notes |
|---|---|---|
| Continuing education (CEUs, conferences) | Yes | Required to maintain licensure — fully deductible under §162 |
| Professional licenses and renewal fees | Yes | State OT/SLP/PT license fees |
| Malpractice / liability insurance | Yes | Required for practice |
| Therapy equipment and supplies | Yes | §179 or bonus depreciation for equipment; supplies expensed directly |
| Home health mileage | Yes | Travel between client sites — not commute to first/from last client |
| Home office (if private practice) | Yes — exclusive use | §280A exclusive use requirement; simplified method ($5/sq ft up to 300 sq ft) |
| Professional association dues (AOTA, ASHA) | Yes (self-employed) | Misc. itemized deduction suspended for W-2 employees |
| Supervision and consultation fees | Yes | Fees paid to supervisors for required clinical supervision |
| Telehealth platform subscriptions | Yes | Software used for telehealth sessions |
Frequently Asked Questions
Can a home health OT deduct mileage for driving between client homes?
Yes — mileage driven between client locations during the workday is deductible business mileage. However, the commute from home to the first client and from the last client back home is generally not deductible — it is a personal commute. The exception is if the OT's home qualifies as their principal place of business (home office) — in that case, travel from the home office to the first client is deductible. To establish the home office as the principal place of business, the OT must use a dedicated space in the home regularly and exclusively for administrative tasks (scheduling, documentation, billing) and must not have another fixed location where they perform these tasks. For 2026, the standard mileage rate is expected to be approximately 67–70 cents per mile (the IRS typically announces the rate in December for the following year).
Is a school-based SLP who works as a 1099 contractor better off forming an S-Corp?
For a school-based SLP earning $100,000+ net as a 1099 contractor, the S-Corp election typically saves $8,000–$15,000 per year in SE taxes. The analysis: pay a reasonable W-2 salary of approximately $70,000–$80,000 (consistent with what a W-2 SLP in the same role would earn), and take the remaining profit as S-Corp distributions not subject to SE tax. At $100,000 net with an $80,000 salary, the SE tax savings are approximately $3,060 per year. At $150,000 net with an $80,000 salary, the savings are approximately $10,710 per year. The S-Corp also enables a Solo 401(k) through the corporation, allowing contributions up to $72,000 in 2026. The S-Corp makes sense when net income consistently exceeds $80,000 and the administrative costs (payroll, state filing fees, separate tax return) are justified by the tax savings.
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Book A Strategy Call With A Tax AdvisorMore Tax Planning FAQs
What is the S-Corp election and how does it reduce self-employment tax?
An S-Corp election allows the owner to split income between a reasonable salary (subject to 15.3% FICA) and distributions (not subject to FICA). For a business owner with $200,000 in net profit paying an $80,000 salary, the annual SE tax savings are approximately $15,500–$18,500. The S-Corp must file Form 2553 within 75 days of formation.
What is the Section 199A QBI deduction and how does it apply?
The §199A deduction allows pass-through business owners to deduct up to 23% of qualified business income (QBI) from taxable income under OBBBA. For taxpayers above $403,500 (MFJ) in 2026, the deduction is limited to the greater of 50% of W-2 wages or 25% of W-2 wages plus 2.5% of qualified property.
What retirement plan options are available for self-employed professionals?
Self-employed professionals can establish a Solo 401(k) (up to $70,000 in 2026), a SEP-IRA (25% of net self-employment income up to $70,000), a SIMPLE IRA ($16,500 + $3,500 catch-up), or a Defined Benefit Plan (up to $280,000+ depending on age). The Solo 401(k) is the best option for most self-employed professionals.
How does the home office deduction work for self-employed professionals?
Self-employed professionals who use a dedicated home office space exclusively and regularly for business qualify for the home office deduction under §280A. The deduction is calculated as a percentage of home expenses equal to the office square footage divided by total home square footage. The simplified method allows $5/sq ft up to 300 sq ft ($1,500 maximum).
What vehicle deductions are available for self-employed professionals?
Self-employed professionals can deduct vehicle expenses using either the standard mileage rate (70 cents/mile in 2026) or actual expenses. Vehicles with a GVWR over 6,000 lbs qualify for §179 expensing and bonus depreciation without luxury auto limits. A mileage log must be maintained for either method.
What is the Augusta Rule and how can it benefit business owners?
The Augusta Rule (§280A(g)) allows homeowners to rent their primary or secondary residence to their business for up to 14 days per year. The rental income is completely tax-free to the homeowner, and the business deducts the rent as a business expense. At $2,000–$3,000/day for 14 days, this strategy generates $28,000–$42,000 of tax-free income.
How does cost segregation apply to business owners who own real estate?
Cost segregation reclassifies building components into shorter depreciation categories eligible for bonus depreciation. For a $1M commercial property, cost segregation typically identifies $150,000–$250,000 of accelerated depreciation, generating $60,000–$100,000 in first-year deductions at the 40% bonus depreciation rate in 2026.
What is the self-employed health insurance deduction?
Self-employed professionals can deduct 100% of health insurance premiums (for themselves, their spouse, and dependents) as an above-the-line deduction under §162(l). This deduction reduces AGI and is available even if the taxpayer does not itemize. S-Corp owners must include premiums in W-2 wages before claiming the deduction.
How should a self-employed professional handle estimated tax payments?
Self-employed professionals must make quarterly estimated tax payments by April 15, June 15, September 15, and January 15. The safe harbor is 100% of prior year tax (110% if prior year AGI exceeded $150,000). Failure to pay sufficient estimated taxes results in an underpayment penalty under §6654.
What is the excess business loss limitation for pass-through owners?
Under §461(l), pass-through business owners cannot deduct business losses exceeding $305,000 (single) or $610,000 (MFJ) in 2026 against non-business income. Excess losses are treated as an NOL carryforward to the following year.
How does the net investment income tax (NIIT) affect self-employed professionals?
The 3.8% NIIT applies to net investment income for taxpayers with MAGI above $200,000 (single) or $250,000 (MFJ). Active business income and wages are not subject to the NIIT. Self-employed professionals who invest in rental properties or passive businesses should plan for the NIIT impact.