Taxes

Can Therapists Deduct Student Loan Payments from Their Taxes?

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January 30, 2024
January 30, 2024
Bryce Warnes
Content Writer
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Student loan payments are a pain.

You worked hard to get an education, get your license, and launch your own private practice. But you still have to scrape together enough cash each month to pay down your student loan debt—even if that debt barely seems to have shrunk at all since you left school.

Here’s how to take (some of) the sting out of your student loan payments through the magic of tax deductions.

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Can therapists deduct 100% of their student loan payments?

Bad news: Student loan payments are not 100% deductible.

However, you may be able to deduct a portion of your total student loan payments at the end of the year. That portion consists entirely of the interest you pay on your debt. More on that shortly.

Why aren’t student loan payments 100% deductible for therapists?

When it comes to deducting education expenses, there’s one important limitation you need to know about: You can’t deduct the cost of education required in order to start practicing your profession.

Since your college or university education allows you to meet the minimum licensure requirements for therapists in your state, your tuition is not a deductible business expense.

That limit extends to your student loan payments. Any money you spend paying down the principal of the loan—the money you borrowed in order to pay your tuition—does not qualify as a tax deduction.

Another way to think of it: You can only write off business expenses like continuing education once you start running your own therapy practice. When you went to school to become a therapist, by definition you were not running your own therapy practice. So the cost of that education is non-deductible.

Who is eligible to write off student loan interest?

When you write off student loan interest, you write it off as a personal expense, not a business expense.

To qualify, you must:

  1. Be legally obligated to pay interest on a qualified student loan
  2. Not be married filing separately
  3. Not be claimed as a dependent on someone else’s tax return
  4. Have paid over $600 in interest over the course of the year
  5. Have a modified adjusted income (MAGI) that falls below a particular threshold, which is set annually

When you make the deduction, you can claim the total amount you paid in interest, or $2,500—whichever is lesser.

Items 1 – 3 should be self-explanatory. Some more info on 4 and 5:

The $600 threshold

If you pay over $600 in interest on your student loans during the year, you can write that amount off as a business expense.

Suppose your monthly student loan payments are $460 each. Of that, $400 goes toward paying down the principal. The other $60 is interest. You pay twelve months of the year, and 12 * 60 = $720. So you can write off that $720 as a business expense.

On the other hand, if your monthly payments are $330, with $300 paying down the principal and $30 consisting of interest, you can’t write off the interest as a business expense. (Because 12 * 30 = $360, which is $240 shy of the $600 threshold.)

Not sure how much you paid in student loan interest last year? No worries—your lender will tell you. More on that in the next section.

The MAGI threshold

For the 2022 tax year, the MAGI limit for student loan deductions was $70,000 (or $145,000 if filing jointly).

To get information for the current tax year, check out IRS Publication 970.

How to deduct student loan interest on your tax return

If you paid over $600 in interest on your student loans over the course of the year, your lender will send you a copy of IRS Form 1098-E (Student Loan Interest Statement).

If you qualify to receive this form, the lender must mail it to you no later than January 31st (or the next business day if January 31st falls on a weekend).

The total amount of interest paid listed on this form is what you deduct on your personal tax return.

You list the deduction on Form 1040, Schedule 1, Line 21:

What about Student Loan Assistance Programs for S corporations?

A company that sets up a Student Loan Assistance Program for its employees can pay up to $5,250 of each employee’s student loan debt per year. The amount the company spends paying off student loans under one of these programs is tax deductible.

If your therapy practice is an S corporation, or if you’re planning to turn it into one, you may be asking yourself: Why don’t I just set up a Student Loan Assistance Program, use it to cover my student loan payments, and write it off my S corp’s taxes?

Sadly, that won’t work.

A Student Loan Assistance Program is only available to regular employees, not shareholder employees. As the owner of your business, you’re de facto a shareholder in the S corporation, so you don’t qualify.

How to write off other education expenses

The education expenses you can write off as a business owner aren’t limited to student loan interest. There are a number of expenses related to your education as therapist that you can write off your taxes, including:

  • Seminars or workshops that help you upgrade your skills as a therapist
  • Educational materials like books, videos, or recordings
  • Professional conferences

For a deeper dive, check out our article What Therapists Need to Know About Deducting Education Expenses.

Looking for more ways to lower your bill this tax season? Check out our complete list of tax deductions for therapists.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.‍

Bryce Warnes is a West Coast writer specializing in small business finances.

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