The Annual New Home Health Agency Review Checklist
A practical checklist for new home health agencies to review finances, taxes, and compliance annually. Covers payroll, deductions, and filing deadlines.
Running a new home health agency means juggling patient care with the business side, and taxes are a big part of that. An annual review keeps you compliant, avoids penalties, and can save you thousands. This checklist walks you through the key financial and tax tasks you need to complete each year, with concrete steps and realistic figures for 2026.
Why an Annual Review Matters
New home health agencies often miss deductions or filing requirements because they are focused on operations. An annual review catches errors, ensures you are paying the right taxes, and prepares you for the next year. For example, the IRS charges a failure-to-file penalty of 5% of unpaid taxes per month, up to 25%. A review helps you avoid that.
Checklist Item 1: Reconcile Payroll and Contractor Payments
Your agency likely has both employees and independent contractors (like some therapists or aides). Misclassifying workers is a common error. The IRS and state agencies are cracking down on this. In 2026, the penalty for misclassifying an employee as an independent contractor can be up to $5,000 per worker, plus back taxes and interest.
Steps to take:
- Pull your payroll records for the year. Verify that all employees have W-2s and all contractors who earned $600 or more have 1099-NECs.
- Check that payroll taxes (Social Security, Medicare, federal and state unemployment) were deposited on time. The IRS requires semi-weekly or monthly deposits depending on your total tax liability.
- If you use a payroll service, get a year-end summary and compare it to your general ledger.
Cost range: Payroll software runs $40-$100 per month, plus $5-$10 per employee. A payroll service with tax filing is $100-$300 per month.
Checklist Item 2: Review Business Expenses and Deductions
Home health agencies have unique deductions. You might be missing out on:
- Mileage for staff travel between patient homes (the 2026 IRS rate is $0.70 per mile, up from $0.67 in 2025).
- Medical supplies and equipment, including PPE, which are fully deductible.
- Continuing education for nurses and aides.
- Professional liability insurance premiums.
- Office rent, utilities, and internet.
- Software subscriptions for EHR and scheduling.
Steps to take:
- Go through your credit card and bank statements for the year. Highlight every business expense.
- Categorize them using accounting software like QuickBooks (costs $30-$100 per month).
- If you used your personal vehicle for business, keep a log. You can deduct either the standard mileage rate or actual expenses, but you must choose one method.
Tip: For home office deduction, you can use the simplified method: $5 per square foot, up to 300 square feet, max $1,500. But if your agency has a separate office, you cannot claim this.
Checklist Item 3: Verify Tax Filings and Deadlines
As a new agency, you must file several returns. Missing deadlines triggers penalties.
| Tax | Form | Deadline (2026) | Penalty for Late Filing |
|---|---|---|---|
| Federal income tax (if sole prop or LLC) | 1040 | April 15, 2026 | 5% per month, up to 25% |
| Corporate tax (if S-corp or C-corp) | 1120-S or 1120 | March 15, 2026 | 5% per month, up to 25% |
| Payroll taxes | 941 | Quarterly (April 30, July 31, Oct 31, Jan 31) | 2%-10% of unpaid tax |
| State unemployment tax | Varies | Varies | Varies |
Steps to take:
- Mark these dates on your calendar. Set reminders two weeks ahead.
- If you need more time, file Form 4868 for a 6-month extension on your personal return, but this does not extend payment due dates.
- For payroll, use the IRS’s Electronic Federal Tax Payment System (EFTPS) to make deposits.
Checklist Item 4: Estimate Quarterly Taxes for Next Year
If you are a sole proprietor, partner, or S-corp shareholder, you must pay estimated taxes quarterly. The IRS requires you to pay at least 90% of your current year’s tax liability, or 100% of last year’s (110% if your adjusted gross income was over $150,000). In 2026, the estimated tax payment deadlines are April 15, June 15, September 15, and January 15, 2027.
Steps to take:
- Calculate your projected income for 2026 based on this year’s revenue and growth.
- Use Form 1040-ES to estimate your tax. If you are unsure, pay 100% of last year’s tax to avoid penalties.
- Set aside 25%-35% of your net income in a separate bank account for taxes.
Cost range: A CPA can prepare your quarterly estimates for $200-$500 per quarter, depending on complexity.
Checklist Item 5: Review Worker Classification and Benefits
New agencies often hire aides as contractors to save money, but this can backfire. In 2026, the Department of Labor’s rule on independent contractor status is still in effect. It uses an economic realities test. If you control the worker’s schedule, provide training, and pay hourly, they are likely an employee.
Steps to take:
- Audit your contractor agreements. Do they have the right to work for other agencies? Do they set their own hours?
- If you have employees, ensure you offer workers’ compensation insurance. This is mandatory in most states for home health agencies. Costs range from $0.50 to $2.00 per $100 of payroll, depending on your state and claims history.
- Consider offering health insurance. The Affordable Care Act requires employers with 50+ full-time equivalents to offer coverage, but even smaller agencies can benefit from tax credits.
Checklist Item 6: Plan for Retirement and Health Savings
As a business owner, you can deduct retirement contributions. A SEP IRA allows you to contribute up to 25% of your net earnings, max $69,000 in 2026. A Solo 401(k) allows employee and employer contributions, with a total limit of $69,000 (plus catch-up if over 50).
Steps to take:
- Set up a SEP IRA or Solo 401(k) before December 31, 2026, to deduct contributions for this year.
- If you have a high-deductible health plan, contribute to a Health Savings Account (HSA). The 2026 limit is $4,300 for individuals and $8,550 for families, plus a $1,000 catch-up if 55 or older. Contributions are tax-deductible.
FAQ
Q: What is the biggest tax mistake new home health agencies make? A: Misclassifying employees as independent contractors. It can lead to back taxes, penalties, and lawsuits. Always err on the side of employee status if you control the work.
Q: Can I deduct the cost of my home office if I also have an office outside? A: No. The home office deduction is only for space used exclusively and regularly for business, and if you have a separate office, you cannot claim it.
Q: When should I start paying quarterly estimated taxes? A: As soon as you expect to owe more than $1,000 in tax for the year. For a new agency, that might be in your first year if you are profitable. Use Form 1040-ES.
Q: Do I need to file a 1099 for every contractor? A: Only if you paid them $600 or more during the year. You must send the 1099-NEC by January 31, 2026, and file with the IRS by that date.
The Bottom Line
An annual review is not just about filing taxes; it is about protecting your agency’s financial health. Use this checklist to reconcile payroll, maximize deductions, meet deadlines, and plan for the future. If you are overwhelmed, hire a CPA who specializes in home health. The cost, typically $1,000-$3,000 for a small agency, is worth the peace of mind and potential savings. Start with the first item this week, and work through the list methodically. Your future self will thank you.