Are you preparing to embark on your first travel nurse or allied health assignment? Are you feeling overwhelmed at the thought of navigating the complex world of taxes? Don’t worry, my friend! This comprehensive guide is here to help you unravel the mysteries of travel nurse taxes, stipend rules, tax homes, deductions, and other important tax considerations that every travel healthcare professional should be aware of. So, let’s dive in and uncover the secrets to confidently managing your taxes like a pro!
Understanding Your Unique Income
As a travel nurse or allied health professional, your income structure is quite different from that of traditional staff. While the details of travel nurse incomes are covered in-depth in our blog on how much travel nurses make, let me give you a quick overview.
In addition to the portion of your pay that is taxed, you’ll also receive “per diems” or stipend payments that are not subject to taxation. These stipends can be a significant advantage of travel nursing as any unspent amount becomes extra cash in your pocket! Think of stipends as an allowance for lodging, meals, and incidental expenses while you’re working away from home. However, there are certain criteria you must meet to qualify for stipends and avoid any issues with the IRS. We’ll delve into those details shortly.
Contract Types: Travel vs. Local Contracts
Here’s something important to know: you don’t have to qualify for stipends or choose to receive them to take travel assignments. There may be circumstances where you prefer your income to be fully taxed, perhaps because you don’t qualify for stipends due to your location or because you’re anticipating a loan or other financial considerations based on taxable income. In such cases, you can still take a travel assignment, but opt for a local contract where your hourly rate is higher and your pay is fully taxed. Make sure to communicate your preferences to your Nurse Advocate, so they can guide you accordingly.
Qualifying for Non-Taxable Stipends
To qualify for tax-free stipend payments, you must establish a “tax home” according to the IRS. A tax home is defined as the city or general area where your main place of business or work is located, regardless of where you maintain your family home. Now, let me break it down for you.
There are two main ways to qualify for a tax home:
Your primary area of residence is also your main area of income. This typically doesn’t apply to travel nurses but is relevant for staff nurses who work at their local hospitals and earn the majority of their income within the same geographical area throughout the year.
You visit your primary residence at least once every 12 months and can provide evidence of incurring expenses to maintain your primary home. This situation is more common for travel nurses and allied health professionals. In this case, you should have lived and worked a staff job in your “main place of business” location. Regularly returning to this location and incurring expenses such as rent or mortgage payments is essential.
As a travel nurse or allied health professional, you can take specific steps to maintain a tax home:
- Keep records of payments that prove you’re incurring expenses at your tax home, such as invoices for a house sitter, rent, mortgage, and utilities.
- Maintain your driver’s license and car registration in your home state.
- If possible, have a per-diem job in your home state.
- Return to your home at least once a year for about 30 days.
- File a residence tax return with your home state.
It’s crucial to demonstrate that you’re duplicating expenses by traveling. This means you’re paying for similar expenses at your tax home and while on assignment in a different location. If you rent out your home while you’re away, you cannot classify it as a tax home since you’re not duplicating your expenses.
State Taxes and Deductions
As a travel nurse or allied health professional, you’ll need to file taxes in every state you work in, as well as your permanent tax home state. It’s important to note that taking a travel assignment, which typically lasts less than 12 months in one location, does not change your primary state of residence for tax purposes. It simply means you’re temporarily away from home, highlighting the significance of maintaining a tax home as explained earlier.
Although federal tax reform laws in 2022 eliminated many deductions, some states still allow you to deduct job-related expenses on your state tax return. It’s wise to retain receipts for expenses such as housing and lodging while traveling, mileage to and from assignments and work, uniform and scrub costs, work-related expenses like CEUs or certifications, and meals while on assignment. Keeping records of these expenses will make tax preparation smoother. You can use your phone to take pictures of receipts or even use a document scanner app to save them as organized PDF files ready for submission with your taxes.
Lower Taxable Income Considerations
One of the attractive aspects of travel nursing is the potential to earn a higher income, especially through non-taxed stipends if you qualify. However, since these additional stipends are not considered income and are not subject to taxation, they are not reflected in your annual income.
What does this mean for you? Well, if you anticipate needing a loan or mortgage, or if you’re nearing the age to collect social security, it may be worth considering a fully-taxed pay package. These financial considerations are based on your taxable income. The lower your taxable income, the lower the loan amount you’ll qualify for, and the less you’ll contribute to Social Security, reducing your future benefits upon retirement.
Don’t worry though! You still have options in such cases. Some lenders are familiar with the pay structures of travel nurses and can assist in planning your loan or mortgage. Alternatively, you can declare that you’re not eligible for stipends or do not have a tax home, opting to receive your full pay as taxable income. Remember to consult with your personal tax consultant to determine the best approach for your situation.
Navigating Tax Audits with Confidence
Due to the unique nature of travel nurse incomes, where expenses are relatively high while taxable income tends to be lower, the IRS often scrutinizes the travel nursing industry closely. As a travel nurse or allied health professional, you may face a higher risk of an audit if your expenses are significant and your income is low.
But here’s the good news: by working with a certified tax professional who is familiar with the intricacies of traveling healthcare professionals, you can reduce the risk of an audit or increase your chances of navigating an audit successfully.
Answers to Common Tax Questions
Now, let’s address some of the most frequently asked questions regarding travel nurse taxes:
How do I receive stipends?
Simply indicate your eligibility for stipends when you sign your contract. You’ll automatically receive stipends as part of your paycheck each week. These stipends are considered expense reimbursements covering costs such as meals, housing, and work-related expenses. No need to submit receipts to receive the payment. Remember to review the earlier section and consult with your tax professional to confirm your eligibility.
Do I need to file taxes in every state I work in?
Yes, you’ll likely need to file a non-resident tax return in every state where you’ve worked within the past year, as well as in your permanent tax home state.
What happens if I work in a state with no income tax?
If you work in a state with no income tax, you won’t owe state income tax to that state. However, you may still owe income tax to your home state, unless your home state also has no income tax.
Am I more likely to get audited as a travel nurse?
As mentioned earlier, the travel nursing industry tends to face closer scrutiny from the IRS, increasing the likelihood of an audit. Working with a certified tax professional well-versed in the tax situation of travel healthcare professionals can help you navigate this risk successfully.
What happens if I extend my assignment in one location for more than 12 months?
As you approach the one-year mark, it’s best to consult your tax professional on how to handle your contract. The answer will depend on your unique circumstances. At Trusted Health, we offer local contracts that are fully taxed, or some nurses choose to take time off between contracts and then extend. Since each situation varies, it’s wise to consult your tax advisor, and please let your Nurse Advocate know how we can assist you!
Can I handle my taxes myself, or should I hire a professional?
While it’s possible to handle your taxes independently, working with a tax professional familiar with the specific tax situation of travel nurses is often beneficial. They can ensure you meet all tax obligations and take advantage of potential deductions.
What records should I keep for tax purposes?
You should keep records of all your income, such as pay stubs, W-2 or 1099 forms, as well as receipts for any tax-deductible expenses. These include records of travel, housing, meals, uniforms, continuing education, and any expenses related to maintaining your tax home. It’s important to save a copy of each assignment, showing your contract dates and pay breakdown.
Now that you’re armed with the secrets of travel nurse taxes and tax homes, you can confidently focus on what you do best: providing exceptional care to those in need. Remember, this guide provides general information and should not be considered tax advice. Always consult with a tax professional to ensure compliance with tax obligations and to maximize potential deductions.
At Trusted Health, we’re here to support you throughout your journey. From finding the perfect assignment to navigating the complexities of travel nurse taxes, we’re committed to making your travel nursing experience as smooth and rewarding as possible.
Join us at DHPL Travels today and become part of a community of healthcare professionals transforming the future of healthcare. Let’s navigate this exciting journey together!