Should you get an EIN for your Private Practice?
Tax ID Set Up
What is an employer identification number (EIN) and why should you consider having one in private practice? In this article, I go over the advantages of having an EIN and I’ll show you how easy it is to apply for one.
What is an EIN?
EIN stands for Employer Identification Number. But what IS an EIN?
I remember when I started out in private practice, I would see “EIN” referenced on various legal forms such as the Schedule C 1040 and I had no idea what it meant. The phrasing of employer identification number threw me off because I figured: I don’t have an employer since I’m self-employed, so I don’t need an EIN.
Oopsies. That’s not exactly how the EIN works!
Think of an EIN as a public social security number for your business. Just like how each individual has a unique social security number, each business can have it’s own EIN. If you’re a sole proprietor working in private practice, you CAN use your social security number to identify your business, meaning it’s optional to have an EIN.
Even though having an EIN is typically optional, there are some situations when having an EIN in private practice has its advantages or is required.
When do you need an EIN in Private Practice?
- Out of network billing. When you complete insurance billing forms, you need to include either your social security number or your EIN to identify your business. If you’re listed on insurance panels, then you can send the bill with your SSN directly to the insurance company. However, if you offer out of network billing, you won’t want to put your social security number on the client’s superbill (unless you’re looking for opportunities for people to steal your identity!).
- Hiring employees. If you become a group practice with employees, you’re required to apply for an EIN. Your EIN appears on the tax forms you submit to your employees every year, so we don’t want your social security number showing up there either!
- Opening a solo 401(k). Even if you don’t do any of the above items, I really encourage you to consider opening a 401(k). The benefits are fabulous! But we’ll have to save that topic for another day.
- Becoming an LLC. All LLCs are required to have an EIN as well.
How to Apply for an EIN in Private Practice
When I decided to apply for an EIN, I thought it would be a huge process. Turns out, it took me about 10 minutes. Here’s how you do it:
- Head to the EIN Assistant via the IRS website. The online assistant is only available during specific hours of operation.
- Click “begin application” and complete the questions.
- Submit the application and wait to receive your EIN! You will receive the number in the mail, but if you need it sooner you can call in and usually be able to access the number within the day.
Easy peazy, right?
Even if you aren’t in one of the listed scenarios above where it’s required to have an EIN, it can be helpful to still have one in the event that you wish to pursue one of these items in the future. And now that you know how easy it is, why not?
Ready to dive deeper into starting a private practice? I have a free guide for that! Check it out here to grab your free guide: Start a Private Practice in Counseling
Until next time, from one therapist to another: I wish you well!