The Legal & Business Implications of Multi-State Therapy Practice
You’re ready to, or already have started seeing clients in other states, maybe to support former clients who’ve moved, or simply to expand your practice in response to growing demand. Before you jump in, there’s a piece of the puzzle many therapists overlook: practicing across state lines doesn’t just raise clinical or ethical questions, it raises business and legal ones, too.
Most clinicians know that to see a client who lives in another state, you need to be licensed in that state. That’s basic. But many assume that once they’ve secured a second (or third) license in the other state, they’re good to go. The truth is, licensure is just one part of the compliance equation. Depending on how you operate, you could also be triggering legal requirements around business registration, taxes, insurance, and advertising, and failing to address these could come with real consequences.
Let’s start with the concept of “doing business.” Even if you never set foot in a particular state, your therapy practice might still be considered as operating there if you consistently serve clients who live in that state. That could be as simple as offering ongoing sessions, advertising your services online, or collecting payment from those residents. In many cases, this means you’re required to register as a foreign entity, essentially letting the state know that an out-of-state business (you) is doing work there. Skipping this step could result in fines, penalties, and even an inability to enforce contracts (including client agreements) in that state.
Then there’s the issue of taxes. Some states require therapists to file state income taxes simply because they earn revenue from residents within that state, even if the therapist is working remotely. Others may require sales tax collection on digital or healthcare-related services, which can come as a shock to private-pay therapists operating entirely online. If you’re seeing multiple clients in another state, or actively marketing to them, it’s a good idea to speak with a CPA who understands multi-state taxation and can help you determine what’s required of your practice. If you are hiring employees or contractors from another state, definitely speak with a CPA and a lawyer.
Insurance is another area where multi-state practice can get complicated. Your malpractice insurance may only cover work in states where you’re both licensed and registered as a business. Similarly, if you carry business general liability insurance or cyber liability coverage, those policies may have geographic limits. Before expanding, check your policies carefully and talk to your provider to make sure your coverage extends to every state where you’ll be working with clients.
If you’re marketing your services to potential clients in other states, keep in mind that advertising and marketing laws vary. Some states have strict rules about how you present your credentials (for example, in California, you have to put your license number on your advertising materials), what kinds of claims you can make, and whether or not you can use testimonials. ”Advertising” in this context includes what is on your website or social media pages. These laws are enforced by licensing boards and consumer protection agencies alike, so if you’re running Facebook ads that target specific states or listing your services on directories like Psychology Today, make sure your language is compliant everywhere it’s being seen.
All of this comes together when you think about your client documents. Informed consent forms, HIPAA policies, telehealth disclosures, and even your intake paperwork might need updates to reflect different state requirements. Some states require specific telehealth consent language. Others have different privacy standards or mandatory reporting rules. This also applies to employee contracts or employee manuals, if you are hiring in other states. You don’t want to find yourself in a situation where your documentation doesn’t hold up in a legal or licensing review simply because it wasn’t tailored to the client’s state.
Before you start seeing clients in a new state, it’s important to do a full compliance check.
Are you licensed there?
Do you need to register as a foreign business entity?
Should you be collecting or filing taxes?
Is your malpractice insurance valid in that state?
Are your consent forms legally sound?
And is your advertising compliant with that state’s board regulations? Each of these questions matters, and overlooking them could create headaches down the line.
The good news is that with some planning and support, expanding your practice across state lines is absolutely possible, and often worth it. The key is to treat it like the strategic business move that it is. Don’t just ask “Am I licensed?” Ask “Am I covered?” “Am I compliant?” and “Am I protected?”
If you’re feeling unsure or overwhelmed, we’re here to help. From legal audits to entity registration to document review, we support therapists like you in building legally sound, scalable practices. Want to talk through your multi-state expansion plans? Book a 30-minute free strategy session with us, we’ll help you sort it out.