You’ve most likely checked other resources on the internet in search of a solution, and you’re even more confused after reading them. The thing is that many of these sites tend to mix up the IRS standard rates for business and medical purposes.
So, what gives?
What Is Medical Mileage Deduction?
According to the IRS, the standard mileage rates for 2023 are:
And it’s these two lines referring to the business-related and medical purposes that get people perplexed.
What does this mean, and which of these two rates apply to home health agencies?
Although it offers medical services, your agency is, in the eyes of the IRS, a business. Therefore, when your caregivers travel to visit patients, they’re practically at work. Just like plumbers, sales reps, or contractors who are traveling to their worksites or meetings with their clients.
Consequently, when claiming your mileage tax deduction, you’re using the rate for business-related purposes - at the moment, it’s 65.5 cents per mile.
Miles driven for medical purposes apply to any taxpayer’s trip to the doctor, pharmacy, or hospital. In short, medical mileage deduction has nothing to do with your home health agency.
This conundrum stems from the fact that different sources use this term to talk about two entirely different things.
And as a home health agency manager, you’re interested in the rate applicable to the mileage accrued when your employees drive to their work-related appointments with patients. Because it’s a write-off that your business will benefit from.
What Is the Difference Between Home Care Mileage Reimbursement and Home Health Mileage Deduction?
To prevent any further potential puzzlement, it’s a good idea to distinguish between these two related terms.
Mileage reimbursement is when employers compensate caregivers for the work-related miles driven in their personal vehicles. It’s worth noting that most federal laws don’t require you to offer reimbursement.
However, if you want to stay competitive as well as recruit and retain skilled caregivers, you should think about having a home care mileage reimbursement policy in place.
Another reason for being generous when it comes to caregiver mileage reimbursement is staying compliant with labor laws. If your employees’ net pay falls below the minimum federal wage level, you could end up with a FLSA lawsuit.
On the other hand, if you choose to exceed the recommended IRS mileage rate, bear in mind that any amount above 65.5 cents per mile you reimburse will be treated as taxable income.
Mileage deduction allows you to offset your home health mileage reimbursement costs and cut your business expenses.
This way, you will get 65.5 cents per mile and make up for at least a portion of the money you spent reimbursing your caregivers.
What Mileage Deduction Rules Should You Follow?
In this section, we’ll discuss mileage deduction guidelines and restrictions to help you stay compliant with the IRS requirements and get the most money on your tax return.
The standard rate vs. the actual cost method
The standard rate method is optional, and it’s not the only way to calculate your mileage deduction.
You can use the actual cost method instead. It includes different car operating costs such as gasoline expenses, repairs, deprecation, oil, maintenance, insurance, and many more.
Both methods have their pros and cons, and you should consider different factors before deciding which one is best for you.
Pros and cons of the standard mileage rate
First of all, the standard mileage rate is easy to implement. It only requires you to track and keep IRS compliant logs of business miles.
The IRS expects you to provide legitimate proof that you reimbursed your employees for business miles only. That’s why compliant logs contain the time, date, purpose, as well as starting and ending point of each trip. And for that, you can use a home health mileage tracker like Timeero.
With this method, you’ll always get the fixed annual deduction rate, hence it’s best suited for smaller, inexpensive cars that accumulate a lot of business miles.
The biggest con of implementing the standard mileage rate is that it usually yields a smaller deduction than the actual expense method.
Finally, there are some limitations to consider when it comes to the standard mileage rates and you can’t use this option:
If you’re using 5 or more cars simultaneously
If you claimed a special depreciation allowance on the car
If you used the actual expense method after 1997 for a car that’s leased
If you opted for the actual expense method the first year the car was used for business.
So, if you want to switch between these two methods for a car that’s personally owned, the standard mileage rate method should be used during the first year it’s used for business.
Pros and cons of the actual expense method
Those who drive full-size, more expensive cars, or SUVs will be much better off by applying the actual expense method. The reason for this is that you can itemize every single expense and factor in car depreciation.
On the downside, in addition to tracking business miles, the actual expense method requires you to keep every single receipt for gas, insurance, and any other expense. After that, you calculate the percentage of business-related miles and multiply that percentage by the total car expenses.
For example, if a car was used for business 50% of the time, and the total vehicle operating expenses amounted to $8,000, you’ll be able to write off $4,000.
Never guesstimate your mileage
Guesstimating your business mileage or relying on your employees to self-report their mileage is a big no-no.
This practice can lead to inaccurate readings, mileage padding, reimbursement fraud, and legal issues.
This doesn’t have to be the case, but your employees might try to report more business-related miles or take longer routes on purpose. Not to mention that such logs aren’t IRS compliant, so if your home health mileage reimbursement records are audited, you risk having your deductions disallowed. Plus, you will be in for a hefty penalty.
If you don’t want your agency to keep on hemorrhaging money, think about implementing a home health mileage tracking app that will put you in control of mileage expenses and prevent legal issues with the IRS. Timeero features mileage tracking, GPS tracking, and the Electronic Visit Verification system, all of which ensure that your mileage logs are accurate and IRS compliant.
What’s the IRS commuting rule?
If your caregivers have to travel to your principal office before they set off to scheduled visits, they’re not entitled to mileage reimbursement. The same applies when they’re traveling home from their principal place of work.
Driving from home to your regular place of work is considered a commute, and according to the IRS, it’s a personal expense. Therefore it’s not tax-deductible.
Is there a limit you should know about?
It’s a good thing you can claim all the business miles, no matter how much you and your employees drive for work.
But there’s a catch you should understand: if a car is used for both personal and business purposes, only business miles can be deducted. And that means you should keep track of all the work-related miles you reimburse and keep a detailed log. That’s where a home health mileage tracker comes in to help you distinguish between whether a trip was taken for personal or business purposes.
Timeero, for example, keeps track of employees' mileage from when they clock in to when they clock out of their shifts, ensuring only business miles are recorded. Besides tracking mileage for reimbursement, it also captures their routes to ensure employees' accountability regarding mileage costs.
If you don’t want your tax write-offs to raise red flags, avoid presenting all your mileage as work-related, round numbers, an extremely high mileage.
Do You Have All the Information You Need About Home Health Mileage Tax Deduction?
Both home health mileage reimbursement and tax deduction are complex and multifaceted subjects. It’s important to clarify what your legal obligations are when it comes to:
Compensating your employees for work-related miles accumulated with their personal vehicle
Maximizing mileage tax deductions.
It’s essential to understand the difference between claiming a mileage tax deduction for business purposes and medical mileage deduction. The former applies to any business, including a home health agency. The latter refers to the mileage driven while traveling to the doctor, pharmacy, or hospital, and every taxpayer is eligible for this write-off. By learning how to properly reimburse your caregivers and maximize your tax return, you’ll grow your home health care business and keep a competitive edge.
Natasa is a writer specializing in the IT and software industry with 6+ years of experience in content writing and online marketing. During that period, she wrote more than 1,000 articles and several ebooks. She majored in English language and literature and loves cats, sneakers, and candy. When she's not working, she's probably binge-watching Netflix.