5 Benefits for Home Health Care to Obtain an EIN
The home health care business is an industry where business owners can simultaneously make a difference while earning a living. To care for others can offer feelings of personal fulfillment, offering either medical or non-medical home healthcare. Either route plays an essential role in helping people with disabilities, age-related conditions, or recovering from illness, injury, or surgery.
Building a home health care business from the ground up involves a lot of planning and hard work. You need to obtain pertinent licenses, market your business to attract clients and handle administrative details such as tax planning.
All businesses are required to pay tax using a unique tax identifier, most of which will use an employer identification number (EIN). While not all home health care companies will need one, there is a high probability you might.
In this article, we will define an EIN and who needs one, and lay out the benefits of an EIN for home health care businesses, even for those companies that are not obligated to use one in their tax reporting.
What is an EIN?
An EIN is a 9-digit unique tax identifier assigned to a business. This tax ID can be likened to a Social Security number (SSN). Much like an individual would use their SSN to file taxes or to submit their W-4s to their employer’s payroll department, a business would use their EIN instead. While an individual can obtain an EIN, the number is actually designated for the business to use. The EIN helps the IRS easily identify companies for tax reporting intentions.
Will I Need an EIN if I’m Self-Employed in Home Health Care?
Self-employed individuals may or may not need to obtain an EIN before they can legally operate. An owner who runs a home health care business and is the only employee working for the business may not need to have one. Generally speaking, you likely do not need an EIN if:
● You are the only employee
● Your business is registered as a sole proprietorship
● You do not have a Keogh plan or solo 401(k) savings plan for retirement
● You do not withhold taxes on income, other than wages, paid to a non-resident alien
Even if the IRS does not require you to obtain an EIN, it would be advantageous for you to get one. Either way, it is a good idea to review with a professional tax expert or an attorney to determine whether you need an EIN. Your professional can also assist with details, such as necessary licenses and/or certifications you might need, liability insurance, HIPAA compliance, and other important requirements.
Without further delay, let’s take a look at these five benefits for self-employed home health care businesses to obtain an EIN.
1. Puts a Barrier Between You and Identity Thieves
Our society today has to deal with the very real likelihood that it’s not “if” data exposure occurs, but when. Identity theft costs Americans a whopping $43 billion in 2023. Using an EIN can help prevent your SSN from being stolen.
Many victims of ID theft are associated with healthcare. Identity thieves are highly focused on stealing sensitive data from the healthcare industry, including information about patients, workers, and employers.
Medical and non-medical health care providers will need to provide their tax ID on several documents, which means if they do not have an EIN, they’ll need to use their SSN. A tax identifier is required on but is not limited to billing documents, insurance documents, and other types of public-facing documents, along with certain types of financial transactions.
As a small business, you might not have stringent cybersecurity mechanisms. Alternatively, those you provide your tax ID to may also not have a strong security posture to protect the data they collect, manage, and store.
Bottom line: every time you give out your SSN as a tax ID, you increase the risk your SSN will be breached, stolen, and exploited. While an EIN breach is bad, it’s not nearly as damaging as having your SSN exposed.
2. Offers Financial Separation of Your Personal and Business Transactions
Using an EIN instead of an SSN provides a clear distinction between your personal and business financial transactions. With an EIN, you will have an easier time opening a business bank account, so you do not need to commingle your funds, causing tax issues and creating potential risks of being audited by the IRS.
Another thought to consider is whether you registered your home health care business as a sole proprietorship or a single-member LLC. If you choose the latter, you will be required to separate your personal and professional transactions. By not taking those steps, you risk losing the legal and financial protections an LLC structure offers you.
3. Helps You Grow a Solid Business Credit Standing
Individuals typically work hard to establish a good credit rating and credit score. Did you know businesses are also rated on their credit? When you have an EIN, you can open a business credit card so you can increase your company’s credit standing.
Once you get your company’s credit established, you can apply for business loans or other lines of credit to help you run your home health care business. Additionally, much like individual credit standing, a good business credit standing will usually equate to having access to more favorable credit terms when you need to borrow money.
Keep in mind that it’s not uncommon for home health care companies to experience fluctuating levels of cash flows due to market demands (which may or may not be consistent), along with delays in being reimbursed by insurance companies or waiting on client payments. Having good credit enables you to have access to cash when you need it.
4. Establish the Credibility of Your Home Health Care Business
It can be highly challenging for new home health care businesses to get new clients because they are unknown entities and have not yet established a reputation. Not having an EIN can work to your disadvantage and put a barrier in the way of building trust with the public.
By blending your personal and business identifications without the distinct separation an EIN provides, people are likely to think you do not commit to taking your business seriously. Small business owners should not underestimate the professional appearance an EIN will provide. In a field such as healthcare, you do not want to look amateurish because it has the potential to hurt your business in the long run.
5. Position Your Home Health Care Business for Continuity and Growth
When you consider all of the above benefits, it’s clear to see how an EIN can both protect you and increase the value of your business. Taking all of the above into consideration, here is a list of the ways an EIN helps you position your home health care business for future growth or to keep your business afloat.
● Can hire employees if you cannot handle all of your clients yourself or need other roles filled, such as receptionist, medical coding and billing specialist, or driver, to name a few *
● Empowers you to have faster and better access to favorable loan terms if you need to quickly expand office space or hire more employees
● Make major purchases (e.g., if you need one or more new company vehicles)
● Have access to business credit to buy essentials such as scheduling software, electronic health record system, telehealth software (if applicable), and the necessary hardware to support them
Like any industry, you have to be prepared to handle the ebbs and flows that come with market demand. If your business experiences an uptick, you will need to be prepared to handle volume lest you risk harming your brand reputation. On the other hand, if the market has a downturn and you aren’t bringing money in, you can get access to funds to hold you over until things pick up again.
*Note: You legally cannot hire employees without an EIN – this is important because if you need immediate help in running your company, you won’t be able to – best to have the EIN already in place.
How to Get an EIN
To obtain an EIN, you’ll need to provide specific details to the IRS. Be sure to fill out all sections accurately, and don’t leave any blanks.
● Legal name of your company
● DBA designation, if used
● Address
● Phone number
● Registered business structure (e.g., LLC)
● Name of the individual responsible for the company (you)
● Your SSN or ITIN
● Date you began providing home health care services
● Reason why you want an EIN
After you complete your application to the IRS and proofread it, it’s ready to submit.
Conclusion
Home health care, much like other occupations in the healthcare industry are in high demand. Between the years 2023 – 2033, the U.S. Bureau of Labor Statistics projects customized home health care services to increase by a significant 21%. This is much faster than other types of occupations.
Launching and growing a home health care business to help others in their time of need can be very rewarding. Ensuring you have the correct licenses and certifications your state requires, along with getting an EIN to better track your company’s financial transactions and taxes, will help set you on the road to success.