skikeystone, Author at Blackmor, CPA

July 25, 2018 By skikeystone Leave a Comment

Why Are Companies Still Paying IRS Mileage Rates?

I get asked about mileage reimbursements rates from time to time. I recently replied to someone and suggested using a modified calculation based on a percentage of local gas prices, which I thought I may as well post here for everyone’s benefit:

Client ‘s Original Mileage Reimbursement Question

Didn’t you suggest using something like 12.5% of local gas prices as a mileage reimbursement proxy instead of the IRS mileage reimbursement rate?

Yes, it’s just a suggestion because 12.5% or 15% or something in that range will give a good, fair reimbursement that covers gas and maintenance for cars. It would come out to something more like $0.34-$0.40, for example, based on a $2.69/gallon gas price.

What folks don’t realize is the federal mileage rate is high because many businesses use trucks and vans and haul loads, which requires more gas. Also many businesses operate inside of city limits with stop-and-go traffic and idling at red lights. Sometimes they own their own fleet, but sometimes they don’t, and they will likely only own vehicles if the GVW exceeds three tons (6,000 lbs.) since the IRS severely caps deductibility of vehicles owned by a business that weigh less than three tons. True story; you can’t make this stuff up.

So what’s with the IRS Rate?

In essence, the IRS rate is a blended rate, or a ‘one-size-fits-most’ rate based on the different vehicle types that business owners and employees drive. Most businesses that reimburse employees for mileage do so at this IRS standard rate, which doesn’t encourage thrift if they’re just paying someone to drive themselves around. For example, a hospice employee driving a route or a CPA visiting a client only have themselves and a laptop, and likely don’t require a large SUV, truck, or van. These only clog up roadways with unnecessary weight and size and consume excess fuel whenever they’re hauling one person. Instead, individual commuters should rely on an economical vehicle with great mileage for transportation, and I even think there should be incentives on both sides to ‘right-size’ what vehicles employees use when driving for businesses—like an additional IRS incentive on both individual and business returns for high mpg vehicles. So, my honest thoughts and feelings on this issue are that lower mileage rates benefit the employee, the company, and the environment by creating creative constraints under which employees will prioritize better mileage vehicles, which also just happen to be lower TCO (total cost of ownership), more reliable and cheaper to maintain. Employees may need persuading to understand this, and that’s fine. It’s simply a matter of communicating the why behind the what.

Just my $0.02.

August 14, 2017 By skikeystone Leave a Comment

Mileage Reimbursement Rates & Methodologies

We decided to post the results of our 2017 survey of how hospices and home health agencies reimburse employees for mileage and on what basis.

How Do Hospices and Home Health Agencies Reimburse Employee Mileage?

In terms of who strictly uses the Federal IRS mileage rate (currently $0.535/mile), it was nearly an even split:

Use of IRS Rate vs. Alternative Basis

Interestingly, some who don’t use exactly the IRS rate still use it as their baseline, with more than 2/3 basing their mileage reimbursement on some percentage of the IRS rate and nearly 1/3 of companies using some other basis. These included internal benchmarks and external websites that publish local gas rates in an agency’s service area. Some unique examples even included paying a flat per paycheck mileage allowance instead of a rate based on typical miles driven, unless the mileage was unusually high. Other hybrids include some employees receiving mileage allowances while the employees in the top 10% of miles driven use leased company vehicles.

How Often to Update?

In terms of updating frequency, annually or even less frequently than annually were the norm. However, there was a tendency to overlap for the companies we surveyed that use something other than the IRS rate as their basis to update on a monthly basis. In other words, those who use local gas rates also tended to set them one month at a time. Of course, while this may keep the reimbursement timely in the event of sharp increases or decreases in gas prices, it certainly requires more administrative work in the payroll department.

Have more questions? Get in touch!

June 1, 2017 By skikeystone Leave a Comment

2017 is a ‘Get Out of CAP Free’ Card

For 2017, hospices landed on CMS’ Chance square and all hospices a ‘Get Out of CAP Free’ card!

Well, maybe it’s more like a ‘Get Out of One Month of CAP’ card. For 2017, hospices have a free month of Medicare payments vs. the beneficiary period. How?

Medicare Hospice CAP Calculation Specifics

In 2016 CMS announced it had changed its CAP year in order to—in their words—align the CAP year with the federal fiscal year. The CAP Rate and Year can be found in the federal register. There are two important items we wanted to highlight:

2017 Aggregate CAP Amount

The per beneficiary aggregate CAP amount for the 2017 CAP year we’re currently in is $28,377.17: a 2% increase over last year.

2017 CAP Transition Year

Because we’re in the ‘CAP Transition Year’ hospices essentially have one less month of payments counted towards CAP, meaning a hospice is slightly less likely to go over CAP this year because the CAP year is cut short by one month. (see Table 26 below).

The beneficiary period (a.k.a. admissions year) has historically been 9/28 – 9/27. I don’t know who came up with such odd dates. However, the 2017 CAP year changes to fiscal year ending 9/30/2017 and then will run 10/1 – 9/30 each year going forward. This means 2017 includes two extra beneficiary or admissions days. On top of this, the payments year has historically been 11/1 – 10/31 but is 11/1/16 – 9/30/17 this year and runs 10/1 – 9/30 going forward, which is one month less for 2017 to accommodate the transition. Hence the name ‘CAP Transition Year.’

This means that in 2017 you have not only two extra admissions days you also get one less Medicare payment month. This combination of two extra admissions and thirty-one fewer payment days adds up to 33 “free” CAP days in 2017. That is over a month’s worth of payments that won’t be counted against a hospice’s CAP this year: hence, if your organization would otherwise be just above CAP by less than 9%, instead you drew a ‘Get Out of CAP Free’ card from CMS’ Chance pile. Or if you were going to be significantly over CAP, you will likely see approximately an 9.04% reduction (33 days / 365 days) in your CAP overage.

Although this should be an easier CAP year, it’s June 1st, which means it’s time to check your CAP since we still have four months of admissions until we get to 9/30. If you’re over CAP, it’s not too late to correct your course before the CAP year ends.

Of course, we are always happy to look at your CAP numbers and advise you where you’re at. We work in most of the major hospice patient management systems, and some systems have built-in CAP reports while others require us to run reports and compile the numbers ourselves. We typically look at all our clients’ CAP about this time of year, but even if you’re not ‘in the family’ get in touch with us and we can help you determine where you’re at.

Source: Federal Register

Source: CMS News Release