Contract vs. Employee PT Income: The Tax Difference

PhysioTax Updated October 2026 3 min read

Many PTs work in more than one arrangement: a W-2 position at a clinic, per-diem or PRN shifts, home health visits, or contract work for a facility. The pay might look similar on paper, but the tax treatment is very different. Understanding it helps you compare offers and plan your year.

Who decides how you're classified

Whether you're an employee or an independent contractor depends on the working relationship, not on what you or the facility would prefer. The IRS looks at how much control the facility has over how, when, and where you work, how you're paid, and the nature of the relationship overall. If you're unsure how you're classified, it's worth asking before the year starts.

As an employee

• Your employer withholds income tax, Social Security, and Medicare from each paycheck.
• Your employer pays the other half of Social Security and Medicare (7.65%).
• You receive a Form W-2 after year-end.
• Work-related expenses you pay yourself generally aren't deductible on your federal return.

As an independent contractor

• Nothing is withheld. You pay income tax and self-employment tax yourself, usually through quarterly estimated payments.
• Self-employment tax is 15.3% on 92.35% of your net earnings, because you cover both the employee and employer halves.
• You receive a Form 1099-NEC if you were paid $2,000 or more in 2026 (the threshold was $600 in prior years), and you report all income either way.
• Business expenses are deductible on Schedule C: CEUs, licensure, malpractice coverage, mileage between sites, equipment, and more.
• You can deduct self-employed health insurance and contribute to a SEP-IRA or Solo 401(k).

What the difference looks like

On $100,000 of earnings, an employee's share of Social Security and Medicare tax is $7,650. A contractor's self-employment tax on the same earnings is about $14,130. That's a gap of roughly $6,500 before expenses and before the deduction for half of self-employment tax.

What to compare before you accept a rate

• The extra tax: about 7.65% more in payroll taxes as a contractor
• Health insurance and any employer retirement match
• Paid time off, holidays, and sick time
• Malpractice coverage, CEUs, and licensing you'd pay yourself
• Travel time and mileage between locations
• Unpaid gaps when a facility cancels or schedules run light

If you have both

It's common to hold a W-2 job and do contract work on the side. The tax rules apply separately to each, and the Social Security wage base is shared between them. Withholding from your W-2 job often doesn't cover the tax on the contract income, so plan for estimated payments.

Getting started

Get any arrangement in writing, track income and expenses from the first day, and set aside a portion of each contract payment for taxes. A short planning conversation before you accept a role can save a lot of surprises later.

Want this applied to your numbers?

We can compare an employee offer with a contract rate using your real numbers. Book a 30-minute call and we'll look at your situation together.

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