You’ve most likely checked other online resources searching for a solution and are 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 the Mileage Deduction for Home Health?
According to the IRS, the standard mileage rates for 2023 are:
And it’s these two lines referring to 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 a business in the eyes of the IRS - the Internal Revenue Service. Therefore, when your home health aides visit patients, they’re practically at work, like plumbers, sales reps, or contractors traveling to their worksites or meeting with their clients.
So, what is the tax deduction for a caregiver?
Consequently, when claiming your mileage tax write-off, you use the rate for business-related purposes. At the moment, it’s 65.5 cents per mile.
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 for caregivers is when agencies compensate 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.
Also, keep in mind that state laws can be more strict than federal. Under California Labor Code 2802, for example, employees are entitled to full mileage reimbursement if they use their own vehicles for business purposes, so always check relevant laws in your area.
However, if you want to stay competitive and recruit and retain skilled caregivers, consider having a home care mileage reimbursement policy in place.
Another reason for being generous regarding caregiver mileage reimbursement is staying compliant with labor laws. If your employees’ net pay falls below the federal minimum wage, you could end up with an 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 reduce 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 comply with 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 is 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, tolls, insurance, etc.
Both methods have pros and cons, and you should consider different factors before deciding which 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, and 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 reimbursement 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 vehicle 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 personally owned car, the standard mileage rate method should be used during the first year it’s used for business.
However, if your agency meets the minimum requirements of five mobile employees driving more than 5,000 miles for business-related purposes yearly, you can consider reimbursing them via the FAVR program and still claim a tax write-off.
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 vehicle expense and factor in car depreciation.
On the downside, in addition to tracking business miles, the actual expense method requires you to keep comprehensive expense reports, including 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 can write off $4,000.
Never guesstimate your mileage
Guesstimating your business mileage or relying on your employees to self-report their number of miles 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 reliable mileage tracking app that will put you in control of mileage expenses and prevent legal issues with the IRS.
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. If you don’t want your tax write-offs to raise red flags, avoid presenting all your mileage as work-related, round numbers, and extremely high mileage.
How Can Timeero Help with Home Health Mileage Reimbursement?
That’s where a home health mileage tracker comes in to help you distinguish 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. As the app recognizes driving speed, you can automate the entire mileage tracking process.
Timeero automatically creates IRS-proof mileage logs. If there are any changes to entries, they will be flagged in the history log.
Besides tracking mileage for reimbursement, it also captures their routes to ensure employees’ accountability regarding mileage costs. Using the Route Replay option, you can easily see your employee’s exact path with every detail you need, including timestamps and speed.
Timeero will automatically split their shift into a timeline that shows how much time they spent on different tasks or places, as well as how long and far they drove between clients.
Timeero also lets you manage commute mileage. The commuter mileage feature enables you to set up the commute distance for each employee - the app will start recording mileage only after this number of miles is exceeded.
There are additional mileage-related functionalities your agency and caregivers will benefit from.
For example, when heading to a specific job location, Timeero can pinpoint the shortest route, helping them reach their destination quickly.
The suggested route feature can compare caregivers’ routes to a particular client’s home and the shortest route available, promoting mileage accountability.
Timeero’s integrations with popular accounting and payroll software allow you to export your mileage expense data and reimburse your caregivers smoothly. Timeero integrates with:
QuickBooks Online and Desktop,
And if you use payroll software that is not on this list, Timeero’s Public API allows for customizable integrations.
To learn more about other ways, Timeero can help your home health agency, check out our Timeero review.
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 your legal obligations when it comes to:
Compensating your employees for work-related miles accumulated with their personal vehicle
Maximizing mileage tax deductions.
Understanding the difference between claiming a mileage tax deduction for business purposes and medical mileage deduction is essential.
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 reimburse your caregivers and maximize your tax return adequately, you’ll grow your home health care business and keep a competitive edge.
FAQ: Home Health Mileage Reimbursement and Tax Deduction
Can a caregiver deduct mileage?
Yes, a caregiver can deduct mileage for costs incurred in the scope of their job. But, commuting miles directly from their home to the main office or from the main office to their home are not deductible.
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.