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Sole Proprietors and Tax ID

Employer Identification Numbers: Why psychologists should apply for one

Using your social security number for your practice could put you at risk when the federal “Transparency in Coverage” rule takes effect. The rule seeks to make providers’ billing information publicly available.

Cite this
American Psychological Association. (2021, August 20). Employer Identification Numbers: Why psychologists should apply for one. http://www.apaservices.org/practice/business/finances/employer-identification-numbers

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Health care providers, including practicing psychologists, who operate as sole proprietors and do not have a federal Employer Identification Number (EIN)—also known as a federal tax identification number—may need to get one before the federal “Transparency in Coverage” rule applicable to health plans takes effect. Using an EIN as a provider will prevent the disclosure of your social security number.

In October 2020, the Health and Human Services, Labor and Treasury departments issued the final rule for “Transparency in Coverage,”1 which is designed to end the mystery behind costs for health care by revealing price variations between providers, reduce waste, and assist consumers in making informed choices about health care.

The rule requires most health insurance companies and group health plans to publicly reveal pricing and quality information to enable consumers to make informed decisions about their care. Beginning January 1, 2022, plans will be required to make this information publicly available in the form of three machine-readable data files that detail certain reimbursement and billing information for providers. The specific pricing information needs to be associated with a provider’s national provider identifier (NPI), Place of Service Code, and EIN. Sole proprietors who use their social security numbers as their business tax ID instead of EINs risk having this information publicly disclosed.

At least one payer (Blue Cross Blue Shield of Vermont) has already released a policy requiring providers to obtain an EIN to submit claims. Other payers may soon follow to protect providers from identity theft. Even if payers do not require providers to use a federal tax number, it makes good sense for solo practitioners to do so voluntarily.

Although solo practitioners are not required by the IRS to obtain an EIN, there are many benefits to those who do. For example, having an EIN protects these individuals against identity theft by offering a layer of protection between business and personal information (e.g., when vendors ask for credit information or clients need it for payment). Having an EIN can open up opportunities for business loans and other lines of credit and may help separate business and personal finances for tax purposes.

Obtaining an EIN is free and straightforward. Psychologists can apply directly with the IRS or talk to their accountant.