Tax Deductions for Home Health Care Workers: A Comprehensive Guide

Due to the nature of the profession, home healthcare providers have a unique set of tax considerations. If your business oversees a large number of mobile home health care employees or independent contractors who provide home community based services, that means you have a unique set of tax considerations as well! In this article, we’ll navigate the complexities of tax deductions for home health care workers, the various expenses that can be claimed, documentation requirements, and best practices for maximizing deductions for home health care workers in your employ. 

Understanding Employment Status

Before addressing considerations of specific tax deductions, you need to understand the employment status of the workers in your employ as it applies to their tax situation. Home healthcare workers can usually be categorized as either employees or independent contractors. 

Because independent contractors are self-employed, they have different tax responsibilities and available deductions than company employees. They receive payment for their work in full with no withholdings, and receive 1099 forms for their tax reporting. They’re also responsible for their entire Social Security and Medicare taxes, which means that they tend to face a higher tax burden. Employees, on the other hand, have taxes withheld from their wages by their employer, and receive W-2 forms to file their taxes, and their employer pays half of their Medicare and Social Security taxes. 

Tax Deductions for Home Health Care Workers

Here are some available tax deductions for home health care workers. 

Home Office Deductions

Home healthcare employees who use part of their home exclusively and regularly for work may qualify to deduct expenses for the business use of their home. This deduction applies to all types of homes, and is available to both renters and homeowners. There are two methods to qualify for a home office deduction. 

The most common method, also known as the actual expenses method, requires the employee in question to determine the percentage of their home devoted to business activities. They then use this percentage to calculate the deductible amount from their actual expenses. These expenses may include insurance, utilities, repair, mortgage interest, and depreciation. The other, more simplified option multiplies a prescribed rate by the square footage of the employee’s office area, up to the maximum amount of 300 square feet. 

This a deduction employees can claim on their own as long as they meet IRS requirements.  

Transportation Deductions

Other tax deductions for home health care workers that may be available to your employees are transportation deductions, as many home health care employees do a considerable amount of travel as part of their job responsibilities. While commuting costs (for example, travel from home to an employee’s first patient and then back home from the day’s final patient) are not deductible, transportation between patient homes may qualify. When it comes to calculating home healthcare and hospice mileage reimbursement, workers can choose between calculating distance using either the standard mileage rate or by using the actual expenses method. 

The actual expenses method requires the worker to track all costs from the vehicle they use for work, and then determine the percentage of these costs related to business use. While this method could result in a large deduction, it requires more meticulous record-keeping and, frankly, a lot of math. Instead, home health care workers and their employers might prefer to use the standard mileage rate method, which provides a fixed rate per mile of work-related travel. This rate covers all vehicle costs, including maintenance, repairs, gas, and depreciation. 

It’s important to note that due to the passage of the 2017 Tax Cuts and Jobs Act, employees can no longer claim mileage deductions on their personal tax returns. This means that if employees are not reimbursed for the business miles they put on their personal vehicles, they cannot write them off on their taxes. Businesses are still able to claim a deduction for reimbursing employee mileage, though. If you have independent contractors, they can deduct mileage from their taxes as a self-employed taxpayer.  

Health Insurance Deductions

When considering the complex world of labor laws and tax deductions for home health care workers, health insurance premiums shouldn’t be overlooked. For businesses with home healthcare employees, offering health insurance can be both a valuable benefit and a potential tax advantage. When an employer pays for all or a portion of their employees’ health insurance premiums, those payments are fully deductible as a business expense. This not only helps in attracting and retaining quality staff, but it also reduces the company’s taxable income, potentially leading to substantial tax savings.

For independent contractors, the rules differ. As self-employed individuals, they can deduct 100% of their health insurance premiums from their net self-employment income. This can be a significant deduction and can help to offset the higher Medicare and Social Security taxes they are liable for. However, it’s essential to remember that the deduction only applies to premiums that they personally paid, and it’s not applicable if they were eligible for a health plan from another source, like a spouse’s employer.

Recordkeeping and Documentation

Meticulous and accurate record-keeping is paramount in validating tax deductions for home health care workers during IRS or HIPAA audits. In order to claim their desired deductions, home healthcare workers should retain bank statements, receipts, mileage logs, and calendar entries for a minimum of three years.

In order to maintain compliance with IRS regulations, mileage logs should include the date of any work-related trips taken as well as the miles traveled, destination, and purpose of each trip. In the digital age, especially after the implementation of EVV tracking requirements, various automated mileage tracking apps and software solutions have been developed to simplify this process. These tools can automatically record travel distances and store information digitally, reducing the risk of losing paper logs, minimizing the chance for human error, and offering convenience to users. These apps and software save time and potentially improve the accuracy of your mileage records, but are also reliant on technology and fallible to human errors like insecure passwords, so backup systems should also be in place to prevent possible loss of data. 

Manage Mileage Data For Taxes With CompanyMileage 

Understanding the myriad tax deductions available to home health care workers is useful information to have for anyone who employs or oversees a large number of mobile workers in the home health care field. Knowledge of these possible deductions can also significantly reduce the tax burden for these workers themselves. 

It can seem like a lot of information to try to keep track of, but CompanyMileage is here to offer the perfect software solution. With our software, home health care workers and the companies that employ them can keep the most accurate, meticulous mileage records to maximize possible deductions and maintain utmost compliance with IRS regulations.

Unlike other mileage reimbursement options, our reimbursement software, SureMileage, uses point-to-point calculations to reduce the risks faced when reimbursing employees. This simplifies the steps employees and contractors need to take to log their work-related travel mileage, which helps prevent inconsistencies, eliminate non-work travel from mileage logs, and stay compliant with EVV requirements . 

SureMileage’s automated processes make expense report submission easy and straightforward, while significantly streamlining the approval process. Our software also integrates with your company’s existing accounting and payroll systems, making reimbursement that much easier. 

If you want to be eligible for tax deductions through your employee reimbursement program, it is crucial to accurately track employee mileage and expenses while meeting IRS requirements. Fortunately, CompanyMileage provides a user-friendly solution to simplify this process. Reach out to us today to request a free demo!