Travel Nurse Taxes: What Are Tax Homes?
As we began our last piece on nursing taxes: There is death and there are taxes. Then there are travel nurse taxes.
While working as a travel nurse adds an additional layer of tax challenges, it can also be a great way to gain a tax advantage. Since travel nurses are working away from their "tax home," certain companies must legally provide stipends and/or reimbursements for their work (more on this later). While higher earning potential in addition to tax advantages are a no-brainer, the complex and unintuitive tax implications and filing requirements are certainly not.
Understanding travel nurse tax homes can be tough at first, but once understood, very important if you're interested in traveling while maximizing your earnings.
While we’ll be going over travel nurse tax home basics in this article, it’s important to include the disclaimer that we’re not tax professionals! This article is for general educational purposes only. For questions on your unique case, you should reach out to the IRS or a tax professional directly.
What Is a Tax Home?
One of the most important steps you can take to protect your earnings as a travel nurse is to understand what a tax home is, and where your tax home is located. This can be a confusing process, especially for first-time travelers, but it doesn’t have to be!
First, let’s go through exactly what tax homes are. (And what they aren’t!)
The IRS defines a tax home as your “principal place of business.” But, in typical IRS fashion, this definition may already be raising more questions than answers―what is a “principal place of business,” anyway? How do you figure out what your is?
Let’s clear things up.
What Counts As Your Tax Home
The IRS explains that a tax home is:
“the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home."
Wait, city or general area? Yes―and this vague wording is put there on purpose.
Not all cities/towns are made the same. Some cities (especially the larger ones like Boston, New York, or San Francisco) are well-linked to a greater surrounding area by highways, public transportation, and more. Getting to one of those surrounding areas in some cases may take even less time than traveling within the city itself!
How do we determine what's inside (or outside) your tax home?
According to the IRS, if you're somewhere on business and need to travel far enough away from your main place of work that it'd be reasonable to pay for overnight accommodations (instead of traveling back and forth between the two locations each day), then you're outside of your tax home. If most people in your exact situation would be willing and able to travel back at the end of the day, you may still be within your tax home. Essentially, the goal is to make it clear that this distance warrants more than just a long commute.
As a reminder: if you’re unsure as to whether a certain aspect of your business is taking place inside of your tax home, check in with the IRS or a licensed tax professional.
No, Your Tax Home Isn’t Necessarily Your Permanent Home. (But It Can Be.)
From the definition above, we know that a tax home is the area where someone holds their primary job and makes most of their income. And since the U.S. Census Bureau tells us that the average commute in the United States is a little under an hour round-trip, most people work and live in the same general area, which means their tax home is their permanent home.
However, certain jobs don’t quite fit this mold. From professional athletes to truck drivers to―you guessed it!―travel nurses, certain careers often require individuals to travel well outside of the general area of their permanent home. And when someone starts making consistent income in one general area that is away from that permanent home, they will automatically establish a new tax home (a.k.a. the place they will get taxed from).
Take, for example, an NBA player whose spouse, kids, and main home are located in Milwaukee, WI, but who plays for the NY Knicks. Since half of his games will be “home” games played at Madison Square Garden in NYC (and he will be in NYC for additional work commitments), his tax home (where he made most of his income) will be in NYC, while his permanent home remains in Milwaukee.
How Does This Impact Travel Nurses?
As we mentioned before, travel nursing is one of the rare industries where professionals are likely to travel well outside of the general area of their permanent home for work.
For example, let’s say that you live in San Francisco, but you’ve recently decided to take a travel assignment in Los Angeles. It's not realistic, ordinary, or sustainable to commute between San Francisco and Los Angeles every day, or even three days a week, so you’d need to find somewhere to sleep and live while you’re working in LA. If you plan to be there only temporarily, you’re not going to move your entire life. You’ll likely keep everything in San Francisco and just rent out a furnished apartment in Los Angeles for the 13 weeks.
This counts as income outside of the general area of your permanent home. And for travel nurses who frequently experience situations like these, paying extra attention to where their tax home should be located is extremely important.
Alright, I get it, you may be thinking, as a travel nurse, I may have a unique tax home situation... but why is understanding all of this so important in the first place?
Long story short, it affects your compensation package as a traveler. If you are a travel nurse working outside of your tax home, you will get a total compensation package that includes a standard pay for the job (this gets taxed) and also reimbursements (up to a reasonable amount) for the cost of traveling to and living in your new location (this doesn’t get taxed). By the way, if you're interested in what compensation packages look like for travel nurses around the country, check out the 2019 travel nurse compensation report.
The “outside of your tax home” bit is super important. The IRS states:
“traveling expenses are only deductible if they are incurred as business expenses while someone is away from home.”
That being said, doing business outside of your tax home isn't the only requirement to claim those reimbursements. On top of needing to be outside your tax home, the IRS also requires that your job be “temporary.” Having a "temporary" job means that you've got reason to believe that you won't be working in that specific position/location for more than a year.
There are a few different common scenarios that‘ll determine where a travel nurse’s tax home should be. We’ll go over the most common cases, but remember to check with a tax professional if you have questions about your specific case!
Scenario 1: Being the “Exception”
Most travel nurses will fall into a category we call an "exception to the rule." The IRS explains this exception in IRS Publication 463.
If you don’t have a regular or main place of business or work, use the following three factors to determine where your tax home is:
- You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.
- You have living expenses at your main home that you duplicate because your business requires you to be away from that home.
- You haven’t abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.
If you satisfy all three factors, your tax home is the home where you regularly live. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are an itinerant worker; your tax home is wherever you work, and you can’t deduct travel expenses.
Let’s translate this into normal-people speak.
The IRS checks for three things when figuring out whether your tax home is in a specific area:
- Are you living and working in that area at least some of the time?
- Do you have “duplicated expenses” (we’ll explain what this means below) when you work somewhere far away from your permanent residence?
- Are you meaningfully connected to your permanent residence and the community around it?
To have a tax home, at least two out of these three things must be true. And - spoiler alert - for most travel nurses, it’s the second and third factors.
Action Item #1: Duplicated Living Expenses
Say you pay $1200 a month for rent (which comes out to roughly $40 per night) at your permanent residence. And as a healthcare professional, you need to take a 4-hour flight to a healthcare conference for work, and you spend the night at a hotel. The hotel ends up costing you $100 a night.
Even though you won’t be sleeping at home for the night, you still owe the $1200 of rent at the end of the month. For that specific night, then, you’re technically paying two costs: the $40 that you’d usually spend because of rent AND the $100 hotel fee.
That is a duplicated expense... and this is a common theme for travel nurses.
Travel nurses usually have a permanent residence that they maintain and pay rent/mortgage on. At the same time, when they work away from home, they’ll also need to pay for their accommodation in that new location, whether it be a motel, an AirBnB, or even an RV!
If you work for a traditional employer, they’ll usually pay for your hotel. If you work for yourself, these expenses can typically be written off when you file taxes. As a travel nurse, you could be eligible for those non-taxable reimbursements we mentioned earlier.
Action Item #2: Proof You Haven’t Abandoned Your Permanent Residence
Fulfilling this condition is fairly straightforward. The IRS just wants to make sure that you have a meaningful connection to the city or area you claim as your permanent residence (and thus tax home). This helps reassure them that you’re not simply trying to game the system.
Here are five steps you should take to do so.
Step #1: Pay Your Fair Share
You should pay “fair market value” for the place that you rent, lease, or own. (And just in case you’re curious: no, paying for your P.O. Box doesn’t count.)
If you’re not sure whether you’re paying fair market value (FMV) for your place, a common way to find a rough estimate of FMV is to check out the median price of listings in the area on Craigslist or other online communities where people buy, sell, and rent properties. If what you’re paying is reasonably around that median, you’re good!
To be extra safe, make sure you have a contract in place (like a lease agreement) that outlines the details of who’s responsible for paying, how much gets paid, and how often payment is collected. Don’t forget to have a copy for your own records!
Hustlers or business-savvy nurses take note. If you rent out the entirety of your permanent residence while you are away on assignment for more than two weeks out of the year, the IRS may consider it switched to a business property and not a residence. In this case, your “permanent residence” would no longer qualify for tax home consideration.
You can, however, rent out part of your permanent residence as long as you keep a portion of the home for personal use, as a place for you to stay in between assignments. Another option to be able to claim your tax residence would be to rent it out as a short term vacation spot (for example, via Airbnb or VRBO) as long as it is not for the entire twelve months and show proof that you intermittently use it for lodging in between assignments.
The IRS states that this is still considered a residence “if the taxpayer uses it for personal purposes during the tax year for more than 14 days or 10% of the total days rented to others at a fair rental price; [also] rental expenses cannot be more than the rent received.”
Step #2: Establish Your Residence
The IRS uses many different factors to figure out where your permanent residence is. According to IRS Publication 523, here are some factors that you’ll want to consider:
- Where is your U.S. postal service address?
- What address is listed on your voter registration card?
- Where do you send your federal and state tax returns?
- What address is linked to your driver’s license or car registration?
- Where is your main banking branch? Is it near the location you’re claiming as your permanent residence?
- Is the location that you’re claiming as your permanent residence close to any recreational clubs or religious organizations that you’re currently a member of?
- Do any family members live at or near the location you’re claiming as your permanent residence?
The more factors you can link to your residence “back home,” the easier it is to make the case to the IRS that your spot there truly is your permanent residence.
Step #3: Come Back and Visit
In addition to establishing your residence, you should return there fairly frequently (and use it whenever you’re back in the area).
The IRS isn’t super clear on exactly how much time they expect for you to spend in your permanent residence. Based on a previous ruling (IRS Rev. Rul. 80-212), around 30 days a year was found acceptable to maintain a permanent residence. This span doesn’t need to be consecutive, so feel free to drop by a couple days or weeks at a time.
This helps the IRS know that you haven’t simply abandoned your pad. After all, it’s not much of a residence if you’re no longer really residing there!
Step #4: Don’t Drop the Ball
Don’t simply stop once you’ve completed the action items above!
Remember, when you’re away from your permanent residence, you should continue to maintain financial and social ties to the area. A good way to be in the clear is to consolidate as many of the following factors as possible into one location, because the factors below (taken from Mertens Law of Federal Income Taxation, Chapter 25D) will be used to assess whether you have a tax home.
- Where do you own or rent your permanent residence?
- Do you need to duplicate living expenses (i.e. pay for housing twice) because of working away from home?
- Are you working in an area near the permanent residence that you’re claiming as your tax home for at least part of the year?
- Do you currently have your possessions at the permanent residence?
- Are you registered to vote in the vicinity of the permanent residence?
- Is your spouse living at your permanent residence?
- Are any other family members living at your permanent residence?
- How long have you claimed this permanent residence as your home?
- How much time do you spend at your permanent residence?
- Are other factors like your main banking branch, your mailing/home address, your automobile registration, and where you receive your tax returns based at your permanent residence?
Step #5: Stay on the Move
Some locations are a dream come true, and you may never want to leave... but if you want to keep your tax home, you’ll have to. The IRS makes that much clear in IRS Tax Topic 511:
You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you can't deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite.
Basically, you get non-taxable reimbursements for temporary assignments outside of your tax home. But your assignment often stops being temporary to the IRS if it lasts longer than a year. In fact, your tax home usually will be switched to the location of that assignment, instead!
It can sound like a headache, but once you get the hang of it, you can become more strategic. The beauty of being a travel nurse in the U.S. is the opportunity to explore 50 states, which can be incentive enough alone to get you out of one geographical region.
Scenario 2: Having a Work Base
Here’s a lesser known pro-tip for you travelers: you may still be able to satisfy IRS requirements and get those tax-free reimbursements through a method that doesn’t require you to rent or own a home at all. Create a work base for yourself as a travel nurse!
Why do you need a work base? As usual, it comes down to the IRS. Remember that their definition of a tax home is a person’s “principal place of business.” By establishing a work base, we’re making it clear to the IRS exactly where that “principal place of business” is.
So what goes into creating a work base that the IRS considers your tax home? According to IRS Rev. Rul. 75-432, “a seasonal job to which an employee regularly returns, year after year, is regarded as being permanent rather than temporary employment.” Put more simply, set things up so that you work at the same job in the same location for roughly the same period every year, and keep this up for as long as you want to claim that location as your travel nurse tax home.
And therein lies the secret! The best part? It’s easier than you think.
Action Item #1: Becoming a PRN (Per Diem) Nurse
How can you do this as a travel nurse?
The easiest option is to become a PRN nurse for a facility or agency based near your tax home, then work the largest portion of your shifts for the year there as local assignments (here's a guide to working with multiple agencies). Keep in mind that as a PRN, you won’t receive non taxable reimbursements for your assignment. That’s because you’ll technically be working in your tax home, and the allowance for tax-free reimbursements is a result of you traveling away from home (and outside of your tax home).
As a PRN working local assignments, you won’t receive non-taxable reimbursements for your assignment.
The term PRN is short for the Latin “pro re nata,” meaning “as needed.” PRN nurses, like travel nurses, are used to help fill temporary gaps at a facility, but there are a couple of differences in the way the two positions are administered. Nurses interested in becoming PRNs can typically sign up directly with a hospital or an agency. You may even be able to sign up for a hospital that you once held a staff position at!
But simply being a PRN by itself isn’t enough. You’ll need to make sure that you sign a PRN contract that does not have an end date. Without a date that your work is expected to terminate by, your contract will count as “indefinite."
Complete those steps and you're halfway there!
Action Item #2: Work the Largest Share of Your Shifts There, Annually
So far, you’ve found a way to make your position “indefinite.” Now you need to make it clear that it’s your “main place of business or work.”
Luckily, IRS Topic No. 511 points us in the right direction:
In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location.
Basically, the amount of time you spend working at your “main place of business or work” each year and the amount of money you make there should be far more than that at any other location in a given year.
Each travel nurse’s working situation—from the assignments you work to the pay you’ll receive for each assignment—will be different, so it can be difficult to know exactly how much work in one location will be enough for you to satisfy the “main place of business or work” requirement. If you have any questions about your specific case, we definitely recommend checking in with an IRS advisor to be safe!
Don’t Make These Four Mistakes!
There are a few pitfalls that any travel nurse will definitely want to avoid to keep yourself out of hot water (read: the IRS saying you owe back taxes). Put simply, the name of the game is to keep things as simple and straightforward as possible. The less digging and guesswork the IRS has to do to find your tax home as a travel nurse, the easier life will be.
Mistake #1: Don’t Overstay Your Welcome
As we mentioned earlier in scenario #1, keep it movin’!
We definitely encourage you to look into extending contracts at any assignments you love. Extending a contract typically won’t jeopardize your tax home status, and a rockstar nurse extending at a hospital they love is a win-win for everyone involved!
Staying in one general area for over a year, however, will likely shift your tax home to that new location, which can be an expensive headache for you if you continue to receive non-taxed reimbursements from a facility in the area.
Mistake #2: Don’t Ditch Your Permanent Residence Without a Plan
While it can be tempting to sell the house (or end your lease) to travel the country, without the proper planning in place, you may end up without a tax home.
Before leaving for travel—especially if you plan on traveling long-term—chat with a tax professional to figure out what steps you’ll have to take to keep your tax home and how maintaining a permanent residence fits into those plans. If you do your research and still decide to sell your pad, make sure that you fully understand the implications.
If you decide to keep your permanent residence, remember to not only stay on top of those payments, but also use it as a base when you’re in the area. This way, you can show the IRS that you still have meaningful connections there.
Mistake #3: Don’t Believe the (50-mile) "Rule"
Remember, in order for any of the above advice to be relevant, you should be taking assignments outside of the “general area” of your tax home!
While some companies have a “50-mile” policy to simplify things, the IRS actually has no such thing as a 50-mile rule when it comes to tax homes. If your travel nurse agency follows a 50-mile policy, then you can only receive tax-free reimbursements from them as long as you travel 50 miles outside of your tax home. But understand that this policy isn’t the end-all-be-all for all companies out there, and it certainly isn’t the policy of the IRS!
The limit of your tax home isn’t based on a set distance, but instead on whether the commute between your tax home and your business destination requires you to spend the night outside of your tax home to conduct business! Regardless of your company’s policy, double-check that your commute requires you to reasonably spend the night elsewhere to keep the IRS happy.
Mistake #4: Don’t Lose Your Receipts
Even if you are qualified and have followed through with all of the advice above, always remember the most fundamental nursing lesson ingrained in our minds: document, document, document!
In the event that you are audited, be prepared with a comprehensive paper trail. Always keep copies of mortgage or rent payments incurred both from your permanent home (if you have one) and any residences that you stay in while on assignment. If you claim shared expenses, always have proof of the gas, electric, and cable (etc.) bills under your name.
In addition, keep copies of receipts for rental cars, mileages and/or flights to get to/from assignments. And be sure to keep extra copies of all your work contracts, as companies will only keep them for you for a couple years, and you may still be audited in the years following.
How to Get the Best Advice for Your Situation
We’ve said it before, and we’ll say it again: we’re not the tax pros!
For the final say on tax home laws and regulations, check out the IRS’s website—you can even schedule a call with a live representative here if you want to go over the specifics of your case with a licensed tax professional.