1099 vs. W-2 for Therapists: What Real IRS Determination Letters Actually Say
If you’ve ever wondered whether a 1099 model would hold up under real IRS scrutiny, these letters (links included) are one of the best places to look.
If you and your CPA, attorney, or compliance person have already made a thoughtful decision about how to classify your clinicians, there’s a good chance you’ve made the right call for your practice. This post is not meant to shame anyone, stir up panic, or suggest that every 1099 arrangement is automatically wrong.
That said, this is probably still worth forwarding to that professional if they did not actually review the IRS Determination letters on previous cases of therapist misclassification.
Why?
Because in my experience, a lot of people talk about worker classification in broad, generic terms without ever reviewing actual IRS determination letters (in the links below) involving therapists, counselors, ABA workers, and behavioral-health staff.
This is a major oversight, because they show how the IRS has actually ruled in cases involving therapists in a variety of settings. These are not hypotheticals. They are real situations at real practices and agencies.
If you’re not familiar with an IRS SS-8 determination letter, it is what is issued when someone asks the IRS to review a work arrangement and decide whether the worker should be treated as an employee or an independent contractor (1099)for federal tax purposes.
That request can come from a current worker or a former worker, often when that person believes they were paid on a 1099 when they should have been treated as a W-2 employee.
Side note: I believe we are going to see an increase in these forms being filed from former therapists at our companies, after they’re no longer employed, either as a form of retribution and/or in the hopes of recovering thousands of dollars they think they overpaid in taxes.
Here’s the punchline for folks or non-tax people, in EVERY SITUATION where the IRS was asked to review someone in a therapist like setting, they determined they should NOT have been classified as an independent contractor/ 1099.
It turns out that the IRS does not think it is sufficient that someone agree to be an independent contractor, had flexibility in their schedule, got paid a percentage, could work somewhere else simultaneously, paid their own license fees, used professional judgment in sessions, etc.
The IRS keeps zooming out and asking bigger questions:
Who brought in the clients?
Who controlled the notes, systems, policies, and workflows?
Who handled complaints?
Was the clinician really operating an independent business, or were they functioning inside someone else’s business?
And most importantly… is the person being hired to perform the main, advertised service provided by the business?
Below, I’ve organized all the IRS Determination letters from the last 5+ years, with the ones most resembling private practice settings first.
The bottom line… every single IRS Determination letter for therapists available on their website concluded that the therapist was misclassified and should be reclassified a W2.
You can click on the link to see the actual documentation, exactly as it is found on the IRS website (it may require the most up to date version of Adobe Reader).
Therapist, Outpatient Counseling Practice — Click Here to View
Therapist, Outpatient Mental Health Clinic — Click Here to View
Licensed Professional Therapist, Psychotherapy Practice — Click Here to View
Outpatient Therapist, Private Practice Setting — Click Here to View
Therapist/Counselor, Family Counseling Practice — Click Here to View
Mental Health Practitioner, Outpatient State-Contracted Program — Click Here to View
Developmental Therapist, Pediatric Outpatient and Community Practice — Click Here to View
Child and Family Assessor/Therapist, DFCS Contract Program — Click Here to View
Mental Health Therapist, Substance Abuse Treatment Facility — Click Here to View
Substance Abuse Counselor, Nonprofit Treatment Program — Click Here to View
Therapist, Home-Based Life Skills Program — Click Here to View
Consultant/Trainer, School-Based Behavioral Services — Click Here to View
Habilitative Interventionist, Developmental Disability Program — Click Here to View
Behavioral Therapist/Technician, Home-Based ABA Program — Click Here to View
Registered Behavior Technician, In-Home Autism Services — Click Here to View
Registered Behavior Technician, Supervision-Heavy ABA Model — Click Here to View
Behavior Technician, ABA Consulting Practice — Click Here to View
Why this matters for group practice owners
If you own or run a group practice, this is where these letters become more than just interesting reading.
A lot of practices build contractor models around one or two facts: “they set their own schedule,” “they’re licensed,” “they signed an agreement,” or “they pay for their own CEUs and malpractice insurance.” The problem is that these letters suggest those facts often do far less work than people think they do.
What seems to matter more is whether the clinician is truly operating a separate business.
If the practice is bringing in the clients, controlling the office or platform, handling the billing, requiring the documentation, setting the expectations, and selling the very services the clinician provides, the IRS may view that worker as part of the business even if the arrangement has a few contractor-like features.
That does not mean every contractor model fails. It does mean the analysis is usually more structural than most owners expect.
So what’s the takeaway?
The biggest theme across these letters is that the IRS keeps looking past the label and focusing on the real structure of the job.
A 1099 by itself did not win.
A contractor agreement by itself did not win.
Scheduling flexibility by itself did not win.
Even a professional license by itself did not win.
What kept mattering was whether the clinician was actually operating an independent business, or whether they were functioning inside someone else’s business, serving that business’s clients, using that business’s systems, and helping deliver the very services that business exists to sell.
And that is why these letters are so useful.
They do not answer every classification question. They do not replace legal advice. And they do not mean every practice should panic and flip every contractor to W-2 tomorrow.
But they do give practice owners something better than vague opinions: a window into how the IRS itself has looked at real therapy, counseling, ABA, and behavioral-health work arrangements when someone formally asked, “Did we get this right?”
If this topic is relevant to your practice, it may be worth sending this post to your CPA, attorney, or compliance advisor and asking a simple question:
Have we looked at actual IRS determination letters in our field, or are we relying mostly on general rules and assumptions?
That question alone may lead to a much better conversation.
