IRS Announces 2024 Standard Mileage Rates and Maximum Vehicle Values

IRS Announces 2024 Standard Mileage Rates and Maximum Vehicle Values

The IRS has announced the optional 2024 standard mileage rates for business, medical, and other uses of an automobile, and the 2024 vehicle values that limit the application of certain rules for valuing an automobile’s use. For 2024, the business standard mileage rate is 67 cents per mile (up from the 65.5-cent rate that applied during 2023). The rate when an automobile is used to obtain medical care—which may be deductible if it is primarily for, and essential to, the medical care—is 21 cents per mile for 2024 (down from the 22-cent rate that was in effect during 2023). The same 21-cent rate will apply for deducting automobile expenses that are moving expenses. For taxable years beginning after 2018 and before 2026, however, the moving expense deduction is available only for certain moves by members of the Armed Forces on active duty (see our article). The 2024 rate for charitable use of an automobile is 14 cents per mile (unchanged from 2023).

Standard mileage rates can be used instead of calculating the actual expenses that are deductible. For example, the business standard mileage rate can be used instead of determining the amount of fixed expenses (e.g., depreciation, lease payments, and license and registration fees) and variable expenses (e.g., gas and oil) that are deductible as business expenses. Only variable expenses are deductible as medical or moving expenses, so the medical and moving rate is lower. Parking fees and tolls related to use of an automobile for medical or moving expense purposes may be deductible as separate items. Fixed costs (e.g., depreciation, lease payments, insurance, and license and registration fees) are not deductible for these purposes and are not reflected in the standard mileage rate for medical care and moving expenses. These and other details about using the standard mileage rate can be found in Revenue Procedure 2019-46.

The Notice also sets the maximum vehicle values that determine whether the cents-per-mile rule or the fleet-average valuation rule are available to value the personal use of an employer-provided vehicle. The cents-per-mile rule determines the value of personal use by multiplying the business standard mileage rate by the number of miles driven for personal purposes. The fleet-average rule allows employers operating a fleet of 20 or more qualifying automobiles to use an average annual lease value for every qualifying vehicle in the fleet when applying the automobile annual lease valuation rule. For vehicles (including vans and trucks) first made available to employees for personal use in calendar year 2024, the maximum vehicle value under both rules will increase to $62,000 (up from $60,800 in 2023). That amount will also be the maximum standard automobile cost for setting reimbursement allowances under a fixed and variable rate (FAVR) plan—an alternative to the business standard mileage rate that bases payments on data derived from the geographic area where an employee generally pays or incurs the costs of driving an automobile in performing services as an employee.

Source: Thomson Reuters

IRS FAQs Explain When Health FSAs, HSAs, or HRAs Can Reimburse Nutrition, Wellness, and General Health Expenses

IRS FAQs Explain When Health FSAs, HSAs, or HRAs Can Reimburse Nutrition, Wellness, and General Health Expenses

The IRS has issued FAQs that explain when certain costs related to nutrition, wellness, and general health are medical expenses under Code § 213 that may be paid or reimbursed under a health FSA, HSA, or HRA. As background, Code § 213 defines medical care as amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting a structure or function of the body. The FAQs explain that medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness, and do not include expenses that are merely beneficial to general health. 

The FAQs confirm that the costs of dental, eye, and physical exams are medical expenses that can be paid or reimbursed by a health FSA, HSA, or HRA because these exams diagnose whether a disease or illness is present. The costs of smoking cessation programs and programs that treat drug-related substance use or alcohol use disorders are also medical expenses because they treat a disease. For the cost of therapy to be a medical expense, the therapy must treat a disease—thus, amounts paid for therapy to treat a diagnosed mental illness are medical expenses, while amounts paid for marital counseling are not. Likewise, the costs of nutritional counseling and weight-loss programs are medical expenses only if the counseling or program treats a specific disease diagnosed by a physician (e.g., obesity or diabetes); otherwise, these costs are not medical expenses. The cost of a gym membership is a medical expense only if the membership was purchased for the sole purpose of affecting a structure or function of the body (e.g., a prescribed plan for physical therapy to treat an injury) or treating a specific disease diagnosed by a physician (e.g., obesity or heart disease). However, the cost of exercise for the improvement of general health is not a medical expense, even if recommended by a doctor. 

The FAQs also explain the circumstances under which the cost of food or beverages purchased for weight loss or other health reasons will qualify as medical expenses, and that the cost of non-prescription drugs can be paid or reimbursed by a health FSA, HSA, or HRA even though these items (except for insulin) are not deductible under Code § 213. The FAQs confirm that the cost of nutritional supplements is not a medical expense unless the supplements are recommended by a medical practitioner as treatment for a specific medical condition diagnosed by a physician. 

Source: Thomson Reuters 

IRS FAQs Explain When Health FSAs, HSAs, or HRAs Can Reimburse Nutrition, Wellness, and General Health Expenses

Can an Adult Child’s Medical Expenses Be Reimbursed Tax-Free From a Parent’s HSA?

QUESTION: Our company sponsors a high-deductible health plan (HDHP) in conjunction with employee HSAs. Can the medical expenses of our employees’ adult children who otherwise qualify for tax-free coverage under the HDHP be reimbursed tax-free from the employees’ HSAs? 

ANSWER: Not necessarily—it depends on whether the adult children qualify as tax dependents under the HSA rules. As group health plans, HDHPs that provide dependent coverage of children must make the coverage available until a child turns age 26. (The age 26 mandate does not generally apply to HSAs because they are not group health plans.) The income exclusion for employer-provided health coverage includes employees’ children who are under age 27 as of the end of the taxable year, regardless of whether those children qualify as tax dependents. But similar provisions do not appear in the HSA tax-free reimbursement rules. Instead, whether an adult child’s medical expenses can be reimbursed tax-free from a parent’s HSA depends on whether the child qualifies as a tax dependent for HSA distribution purposes—i.e., whether the adult child is a qualifying child (for example, due to disability) or a qualifying relative (where the parent provides over one-half of the child’s support). Distributions from a parent’s HSA that reimburse a nondependent adult child’s medical expenses are taxable and may be subject to an additional 20% tax. 

Thus, the medical expenses of some adult children who are enrolled as dependents in your company’s HDHP will not qualify for tax-free reimbursement from the employee-parent’s HSA. It is possible, however, that these children may be HSA-eligible themselves. If they cannot be claimed as tax dependents and they meet the other HSA eligibility requirements, they could open HSAs of their own. 

Source: Thomson Reuters

IRS FAQs Explain When Health FSAs, HSAs, or HRAs Can Reimburse Nutrition, Wellness, and General Health Expenses

Can HSAs provide tax-free reimbursement for the same expenses as Health FSAs?

Question: Our company currently offers a general-purpose health FSA. If we switched to an HDHP/HSA, could our employees receive tax-free reimbursements for the same types of expenses from their HSAs?

Answer: Yes, and they might acquire a few additional options. Like health FSAs, HSAs can provide tax-free reimbursement of out-of-pocket expenses for medical care. But HSAs also can reimburse certain expenses that health FSAs cannot. Those differences are highlighted below.

  • Nonmedical Expenses: Unlike health FSAs, HSAs can make distributions at any time and for any purpose, although only distributions for qualified medical expenses are tax-free. Some taxable distributions may also be subject to a 20% excise tax.
  • Insurance Premiums: While HSAs generally cannot reimburse health insurance premiums or coverage contributions on a tax-free basis, there are a few exceptions:
    • Qualified long-term care insurance
    • Any federally required continuation coverage (e.g., under COBRA or USERRA)
    • Health plan coverage while the HSA account holder is receiving unemployment compensation under state or federal law
    • For HSA holders who are age 65 or older, any health insurance other than a Medicare supplemental policy
  • Qualified Long-Term Care: Unlike health FSAs, HSAs can reimburse qualified long-term care services on a tax-free basis.

In addition, HSAs cannot limit the types of expenses that are reimbursable on either a taxable or tax-free basis because they are individual trusts to which account holders must have unrestricted access, subject only to reasonable restrictions on the frequency or minimum amounts of distributions. HSAs are also different in terms of whose expenses they can reimburse tax-free. Health FSAs can provide tax-free reimbursements for the expenses of employees’ children who are under age 27 at the end of the taxable year, regardless of their status as tax dependents. However, HSAs can only provide tax-free payment or reimbursement of the expenses of an HSA account holder’s child if the child qualifies as a dependent. Keep in mind that other requirements (e.g., regarding substantiation of expenses) will also apply and may vary from arrangement to arrangement.

Source: Thomson Reuters

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