If you're wondering if mental health therapy is tax deductible, the short answer is yes. The Affordable Care Act defines mental health as an “essential health benefit.” You can deduct your counseling and mental health expenses along with mileage on your return as medical expenses! The IRS allows you to deduct qualified medical expenses that exceed 10% of your adjusted gross income for the tax year.
You can also deduct your trips to the therapist or counselor as medical treatment, according to the Internal Revenue Service. This includes mental health counseling, art therapy, pain management, psychiatry, massage therapy, acupuncture, developmental therapy, physical therapy, smoking cessation, and rehabilitation services for substance use treatment, as well as any other care to diagnose, treat, or prevent a physical or mental illness.
The IRS requires a licensed psychiatrist, certified doctor, or licensed mental health therapist (LCSW or LPC) to perform the services. However, if the therapy or treatment is deemed not a medical necessity, then the therapy is not tax-deductible.
Any fees paid to psychologists, psychiatrists, and other mental health counselors are considered medical expenses. The portion of medical expenses for you and your dependents that exceed 7.5 percent of your gross taxable income is tax-deductible. You absolutely must itemize your deductions and complete Schedule A to take advantage of this provision in the tax code. Costs incurred to get to and from medical facilities, which would be the counselor's office in this case, as well as the cost of medications also count as deductible expenses.
You cannot deduct any medical expenses for which you have already been reimbursed, whether by an insurance company, your employer, or a government agency. As a freelance worker or gig worker, be sure to learn about your options for covering the cost of mental health services and deducting mental health expenses from your taxable income. That means insurers can't charge mental health providers a higher copayment than other specialists.
According to a Kaiser Health Foundation survey, 13% of Americans who needed mental health services did not receive them because of the high cost of medical care, including mental health therapy. This certainly includes freelancers and gig workers, who often work several part-time jobs and don't have insurance. If you fall into this category, look into the Healthcare.gov insurance plans, which are affordable and perfect for freelancers. Many therapy practices offer sliding scale therapy, as well. Be sure to ask about this.
Therapists and Taxes
If you're a therapist wondering about tax deductions, here are some common tax deductions that you should consider as a professional therapist, a small business owner, or a private practice or therapy agency.
First, liability and malpractice insurance definitely count as a qualified expense deduction. This can save a good amount on income tax if you deduct it! Health insurance premiums can be a little tricky. Health insurance premiums for you, your spouse, and your dependents (if applicable) may be tax-deductible. However, the deduction you can take is limited to your company's income. This means that if your business reflects a loss, health insurance premiums are unfortunately not deductible.
Another often overlooked way to save on your taxes is with mileage tracking. Be sure to track all vehicle operating costs during the year, including gas, oil, repairs, tires, insurance, registration fees, and vehicle payments (even leasing a vehicle qualifies). Multiply those expenses by the percentage of miles traveled by the business vehicle. Use a mileage tracking app to easily keep track of this! If counseling is medical in nature, fees may be tax-deductible.
Insurance vs Paying Out of Pocket
More and more people are paying out of pocket for mental health services because of the hassles of dealing with insurance. Like many types of health care, counseling and other mental health treatments that meet certain requirements can be deducted as medical expenses from your income tax.
Many therapists and therapy practices are also choosing not to accept insurance, unfortunately, due to the hassles of filing with insurance companies, the payment turnaround times, and other issues. Whether you're helping people cope with trauma and grief or counseling them through serious mental illness, a career as a mental health counselor isn't for the faint of heart.
Tax Help for Therapists
Working with another mental health professional can help with professional development and give you additional insight into your work as a professional therapist, ultimately improving your business in the long run. Be sure to discuss your in-network provider options (as well as out of network options) and talk to your accountant to find out if itemized deductions could make your mental health services more affordable.
The Mental Health Parity and Addiction Health Act requires insurers to cover the cost of mental and behavioral health treatments as much as they do for physical ailments. If you're spending a lot of money paying taxes to the IRS your salary can drop substantially. Mental health counselors are eligible for several tax deductions. Heard is an accounting and tax platform for professional therapists, which helps small business owners who provide mental health therapy services and helps them keep track of their office's financial health. Look into it!