You’re starting at a group practice or thinking about joining one, and they mention you’ll be a 1099 contractor.
Sounds flexible, right? You set your own schedule, you’re your own boss, and you get a higher percentage split.
But here’s what most therapists don’t realize until tax season hits: that 1099 classification can cost you thousands of dollars more per year than a W-2 position, even with the same revenue split.
We work with hundreds of therapists every year, and the 1099 vs W-2 question comes up constantly. The problem is that many group practices get this classification wrong, either intentionally or because they don’t understand the rules. And when they get it wrong, you’re the one who pays the price.
Let’s break down what these classifications actually mean, what the IRS really looks for, and how to figure out which one you should be.
What 1099 and W-2 Actually Mean
A 1099 contractor is self-employed. You run your own business, and the practice owner is your client. You get a Form 1099-NEC at the end of the year showing how much they paid you.
A W-2 employee works for someone else. The practice owner is your employer. You get a Form W-2 at the end of the year showing your wages and the taxes already withheld.
The difference sounds simple, but it affects everything: your taxes, your benefits, your legal protections, and your actual take-home pay.
The Tax Difference Alone Is Massive
This is where the 1099 vs W-2 decision gets expensive.
As a W-2 employee, you pay 7.65% in Social Security and Medicare taxes. Your employer pays the other 7.65%.
As a 1099 contractor, you pay both halves. That’s 15.3% in self-employment tax before you even get to your income tax.
Let’s look at an example. Say you bring in $80,000 in revenue for the year.
As a W-2 employee, you pay $6,120 in Social Security and Medicare taxes.
As a 1099 contractor, you pay $12,240 in self-employment tax.
That’s an extra $6,120 out of your pocket just for the same work.
And that’s before income tax. Most therapists should plan to save 25-35% of their profit for taxes when they’re 1099, not just their gross income.
The Hidden Costs Add Up Fast
The tax difference is just the start.
As a 1099 contractor, you’re also responsible for:
- Your own malpractice insurance (usually $200+ per month)
- Your own EMR system if the practice doesn’t provide one
- Your own health insurance at full cost with no employer contribution
- Your own retirement contributions with no employer match
- Quarterly estimated tax payments to avoid penalties
A comparison we see all the time: two therapists on a 60/40 split, each earning $6,000 monthly. The W-2 therapist walks away with roughly $1,000 more in total value per month than the 1099 contractor, even with no paid time off.
That’s $12,000 per year in real money.
What the IRS Actually Looks For
Here’s the thing that catches most people off guard: the IRS doesn’t care what the practice calls you. They care about the actual working relationship.
A practice can’t just slap a 1099 label on you and call you a contractor. The IRS has specific tests to determine if you’re truly self-employed or if you’re actually an employee being misclassified.
The Real Test: Control
The main question the IRS asks is: Who controls the work?
If the practice owner controls how, when, and where you do your work, you’re probably an employee, not a contractor.
Here’s what the IRS considers:
Behavioral control: Does the practice tell you what to do and how to do it? Do they set your schedule? Do they require you to use their forms, their treatment approaches, their documentation system?
Financial control: Do you have your own business expenses? Can you work for other practices at the same time? Do you advertise your own services? Can you make a profit or a loss?
Relationship type: Do you get benefits? Is this an ongoing relationship or a specific project? Is your work a key part of the business?
The IRS Track Record Is Clear
Here’s a fact that should make you think twice before accepting a 1099 position: in every single IRS determination letter available for therapist settings, the IRS concluded that therapists should not have been classified as 1099 contractors.
Every single one.
The IRS found that factors like scheduling flexibility, percentage-based pay, or professional licenses alone weren’t enough. What mattered was whether the clinician was truly operating an independent business or functioning inside someone else’s business.
Most group practice therapists fall into that second category.
Common Misclassification Scenarios
We see the same patterns over and over. Here are the situations where therapists are most often misclassified as 1099 contractors when they should be W-2 employees.
You Use the Practice’s Everything
You see clients in the practice’s office. You use their EMR system. You use their intake forms. You follow their policies and procedures. You’re listed on their website as part of their team.
That’s an employee relationship, not a contractor relationship.
A true independent contractor would have their own systems, their own space, their own business infrastructure. They might rent an office from the practice, but they’d be running their own separate operation.
The Practice Sets Your Schedule
The practice assigns you, clients. They tell you what hours you need to be available. They require you to attend team meetings or training.
Again, that’s control. And control means employee.
A true contractor would set their own hours, choose their own clients, and decide whether to attend optional meetings.
You Can’t Work for Anyone Else
If your agreement says you can only work for this one practice, or if they get upset when you take clients elsewhere, that’s a red flag.
Independent contractors run their own businesses. They can have multiple clients. They can market themselves however they want.
If you’re exclusive to one practice, you’re functioning as an employee.
What Happens When You’re Misclassified
Misclassification isn’t just a paperwork problem. It has real consequences for both you and the practice owner.
For You as the Therapist
You overpay on taxes because you’re covering both halves of Social Security and Medicare when your employer should be paying half.
You lose out on unemployment benefits if you lose your position.
You don’t get workers’ compensation coverage if you’re injured.
You can’t access employer-sponsored health insurance or retirement plans.
You might not be covered under the practice’s malpractice insurance.
The good news is that if you were misclassified, you can file Form SS-8 with the IRS to request a determination. Former therapists are increasingly filing complaints to recover thousands in overpaid taxes.
For the Practice
The penalties for misclassification are severe, which is why you should know what your practice is risking.
For unintentional misclassification, a practice faces a $50 fine per unfiled W-2, 1.5% of wages, and 40% of unpaid FICA taxes plus the employer’s full share.
For intentional misclassification, penalties escalate to up to 20% of wages, 100% of FICA taxes, and in severe cases, criminal charges with fines reaching $500,000 and possible jail time.
The enforcement is real. In September 2022, Uber paid $100 million in unpaid state payroll taxes and penalties to New Jersey for misclassifying nearly 300,000 drivers. The same scrutiny is now extending to healthcare and mental health fields.
When 1099 Actually Makes Sense
We’re not saying 1099 is always wrong. There are legitimate independent contractor relationships in the therapy world.
Here’s what a true 1099 contractor relationship looks like:
You have your own practice and your own clients. You contract with the group practice to provide specific services, like covering for a therapist on maternity leave or running a specialized group program.
You set your own schedule and your own rates. The practice doesn’t control how you do your work.
You use your own systems and your own space, or you pay market rate to rent space from the practice.
You can work for multiple practices or clients at the same time.
You market yourself independently and maintain your own professional identity separate from the practice.
If that describes your situation, 1099 might be the right classification. You get the flexibility and independence of running your own business, and you accept the higher taxes and additional costs that come with it.
How to Figure Out Your Classification
If you’re not sure whether you should be 1099 or W-2, ask yourself these questions:
Who decides when and where you work? If the practice sets your schedule and assigns your office, that points to the employee.
Whose clients are they? If the practice does the marketing, handles the intake, and assigns clients to you, those are the practice’s clients, not yours. That points to the employee.
Can you say no? If you can’t turn down clients, set your own rates, or choose your own treatment approaches, you don’t have the independence of a contractor.
What happens if you want to leave? If you can’t take your clients with you because they’re considered the practice’s clients, you’re an employee.
Do you have your own business infrastructure? If you don’t have your own EMR, your own malpractice insurance, your own business entity, and your own marketing, you’re not really running a separate business.
If most of your answers point to an employee, you should probably be a W-2.
What to Do If You’re Misclassified
If you think you’re misclassified, you have options.
Start by having a conversation with the practice owner. They might not realize they’re doing it wrong. Show them the IRS guidelines and the potential penalties. Many practices will reclassify you once they understand the risk.
If that doesn’t work, you can file Form SS-8 with the IRS to request a determination. The IRS will review your working relationship and make a decision about your classification.
You can also file Form 8919 with your tax return to calculate and pay only the employee share of Social Security and Medicare taxes if you believe you were misclassified.
Keep in mind that filing these forms might strain your relationship with the practice. But you also shouldn’t be paying thousands of dollars extra in taxes because they don’t want to follow the rules.
The 2026 Tax Changes You Need to Know
Starting with the 2026 tax year, there’s one small change that affects 1099 contractors.
The filing threshold for Form 1099-NEC increases from $600 to $2,000. That means if you make less than $2,000 from a single client, they don’t have to send you a 1099.
But here’s the catch: you still have to report that income and pay taxes on it. And if you’re self-employed, you still have to file taxes once you owe more than $400 in self-employment taxes.
This doesn’t change the fundamental question of whether you should be 1099 or W-2. It just means less paperwork for very small contract relationships.
Making the Right Choice for Your Practice
The 1099 vs W-2 decision isn’t just about taxes. It’s about understanding the true cost of each option and making sure you’re classified correctly.
If you’re truly running your own independent practice and contracting with other practices for specific services, 1099 can work. You get flexibility and control, and you can deduct your business expenses to offset some of that self-employment tax.
But if you’re working inside someone else’s practice, using their systems, seeing their clients, and following their rules, you should probably be W-2. The extra taxes and costs of being 1099 aren’t worth it when you don’t actually have the independence that’s supposed to come with contractor status.
And if you’re considering starting your own practice and hiring other therapists, make sure you get the classification right from the start. The penalties for misclassification are too high to risk it, and the IRS is paying attention.
The classification question can get complicated fast, especially when you factor in state laws, specific practice arrangements, and the actual financial impact on your take-home pay. If you’re not sure where you stand, or you want to make sure you’re handling your taxes correctly for your classification, we can help you figure it out.
Let’s chat about your specific situation and make sure you’re set up right.
TL;DR: The difference between 1099 and W-2 classification can cost therapists over $12,000 per year in extra taxes and expenses, and the IRS has ruled against therapist 1099 classification in every available determination letter. Most group practice therapists should be W-2 employees based on who controls the work, whose clients they see, and whether they truly run an independent business.
