Trusted Guide to Travel Nurse Taxes
There is death and there are taxes. Then there are travel nurse taxes.
It's an entirely different ball game but one definitely worth playing if you’re interested in traveling while earning (and keeping) the most money possible.
The typical draw to travel nursing is the opportunity to experience various parts of the country in a work-life immersion. A lesser known, but arguably superior, perk is a higher earning potential.
Travel nurse earnings can have a tax advantage. This is because companies can legally reimburse its nurses for certain expenses incurred while working away from home (you can think of these as travel expenses). These reimbursements, or stipends, can be tax free with proof of an official tax home in your home state and duplication of expenses. For a comprehensive guide of travel nurse pay by state and specialty, check out our 2019 Travel Nurse Compensation Report!
The higher earning potential of travel nursing in relation to tax advantages can seem like a no-brainer. The tax implications and filing requirements are not. And you will likely find that the overly-accommodating and helpful recruiter has long forgotten your name when you need help understanding all the tax implications. That’s what a tax advisor or accountant is for and is definitely worth utilizing.
The Trusted Travel Nurse Tax Guide
To ensure you receive the most out of travel nursing and to combat a combination of anxiety, confusion, and an existing lack of resources, we've put together a succinct guide.
*Trusted, Inc. and its affiliates do not provide professional tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.*
Understanding “Permanent Home” vs. a “Tax Home”
Home is where the heart is. But not according to the IRS.
You must establish a tax home in order to qualify for the beneficial tax-free income of travel assignments. Any expenses incurred from working away from your tax home have the opportunity to be reimbursed with non-taxable money. The caveat here is that you must be able to consider a tax home. So what is a tax home?
Let’s start with the basics. For the purpose of explanation, let’s say I live in San Francisco.
A permanent home is your legal residence and mailing address where you are registered for your driver’s license and to vote. Think of your permanent home as your primary residence. Thus, San Francisco is my permanent home.
According to Investopedia, a tax home is “the city or general vicinity where a primary place of business or work is located, regardless of the location of a residence. The IRS considers an employee to be traveling away from home if his/her business obligations require him/her to be away from a tax home for a period longer than an ordinary work day.”
The wording is slightly vague and is somewhat subjective. What is an ordinary work day anyway? Think of it as a reasonable commute. It is something you could easily do and sustain five days a week. San Francisco is also my tax home if my primary work/business/means of income is in San Francisco. The ability to claim a tax home is irrelevant for most people.
In this example, the purpose of it being a tax home only matters if and when business takes me away from San Francisco for a period longer than ordinary work day.
Let’s say that I decide today to take a travel assignment in Los Angeles. It is not realistic, ordinary, or sustainable to commute between San Francisco and Los Angeles every day, or even three days a week. Thus, I would have to find somewhere to sleep and live in Los Angeles while I am there for for work.
In this situation, I have two options:
- If I plan to be there only temporarily, I’m not going to move my entire life. I’ll keep everything in San Francisco and just rent out a furnished apartment in Los Angeles for the 13 weeks of a travel nursing assignment.
- If I had no belongings or sold all my stuff, terminated my lease in San Francisco, and up and moved to LA, I would become a nomad and itinerant worker and cannot claim a tax home.
In option (1), I am going to incur duplicative expenses. While traveling away from my tax home of San Francisco, I have to pay the same living expenses in LA. Because these are duplicated expenses, I qualify for non-taxable income and reimbursements.
In option (2), I am a true nomad with no permanent home or tax home and am considered an itinerant worker and thus cannot claim a tax home.
But it’s not always this clear cut. The key as a travel nurse is being able to consider a legitimate tax home. In this case, is my home in San Francisco a legitimate tax home?
Let’s answer a few questions to find out:
- Do I use this tax home for lodging purposes while performing a majority of business or work within the vicinity of this tax home? Yes, as a nurse, San Francisco is my main place of work/income.
- Do I incur living expenses at this tax home that I "duplicate" while traveling away from this tax home for work? Yes, I am paying the same living expenses in LA as I am in San Francisco. This would be a no if I rented out my entire apartment/rent burden while gone or didn’t incur any expenses from San Francisco.
- Do you utilize this tax home primarily for your own personal lodging related to your primary business? Yes, when I go back to San Francisco after my assignment or long weekends, I use the home for my own lodging. This would be a "no" if my home in San Francisco was used for renting out to friends, family, or as real estate income.
Since I answered yes to all three questions, then I do indeed have a tax home.
It becomes more difficult when the answer is “maybe” or “no.” As a traveler, it can become difficult to satisfy the first question. According to the IRS, in order to legitimately have an affirmative answer to this question, you must earn (and pay taxes on) a significant portion of your income at your tax home. If this is not the case, you are then utilizing this home for personal (versus business) reasons, in which case you could not legally declare it a tax home.
Note: the work-around here is to periodically physically return to your tax home to work.
You can still be eligible for travel assignments as an itinerant worker even if you are unable to legally declare a tax home. However, you will be unable to legally receive tax-free income or reimbursements. Be aware that this stipulation can make a big difference in the total compensation of your package! Oftentimes, recruiters don’t care what your personal situation is. They will present the most appealing package whether it specifically relates to your actual situation or not.
For a more in-depth look at tax homes, check out this more detailed post on tax homes.
The determination of a legal tax home will affect the length of time you are able to stay at any one assignment away from your tax home. You will run the risk of the IRS considering a new tax home if you spend too much time in any one geographical location. For example, if I continued to renew my contract in LA or continued to work there for an extended period of time, I run the risk of LA becoming my tax home.
Note: a common suggestion is to avoid staying in any one tax region for more than 12 out of every 24 months.
What is a tax region? As a simple rule-of-thumb, think about whether it is common for local people to commute between these two assignment locations for work. While working in LA, Santa Monica would be considered the same tax region; San Diego would not.
Take note that if you earn significant income in one state (such as California) for more than 2 years, that state may attempt to claim you as a resident and tax you against additional income. This would be important to be mindful of if the city you travel to for work is within the same state as your tax home.
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.
The consideration of length of time should include the aforementioned need to return to your tax home in between assignments and at least once per year to legally satisfy all criteria (specifically the third one) of a legal tax home.
The tax advantages of a total compensation package can come in the form of stipends, reimbursements, and write-offs. Most agencies dabble primarily in stipends. **This is mainly where the new 2018 tax laws apply.**
Reimbursement: A business-related expense that you have paid for out-of-pocket that your employer pays you back for.
This is typically done in the form of an expense report. You incur expenses, save all receipts, submit it to your employer, and the money they pay you back is tax-free.
Stipend: A fixed amount of money, or lump sum, paid periodically in order to cover expenses.
Stipends are tax-free when they are used to cover duplicated expenses. They cover typical living expenses such as lodging and meals and incidentals. These stipends do not have to be reported as taxable income if you can prove this duplication of living expenses.
Hustlers or business-savvy nurses take note. If you rent out the entirety of your permanent residence while you are away on assignment, the IRS will consider it a business property and not a residence. Therefore, It will no longer satisfy the third requirement of a tax home (the only exception is if you rent it out for fewer than 15 days of the year) and not qualify for a non-taxable stipend.
You may rent out the home 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.”
There are some ways to offset expenses at your permanent residence with income, while still being able to claim it as a tax home. If you choose to rent year-round, you may report certain expenses (maintenance, insurance, and interests) as deductions to reduce the total amount of rental income subjected to tax (IRS Pub 527).
Deductions/Write-offs: Business-related expenses not reimbursed by an employer can become deductions from your total taxable income.
Under the new 2018 tax laws, deductions are no longer an option. Travel nurses can no longer deduct travel-related expenses such as food, mileage, gas, and license fees. The only way to recuperate this money is either through a stipend from your travel agency in accordance with GSA tables or in the form of reimbursements.
On top of this, it is also no longer an option to deduct the difference between your stipend amounts and GSA allowable amounts. For example, in San Francisco, the daily max for lodging is $276. If my agency gives me a lodging stipend of $150 per day, I can deduct the $126 a day difference from my taxable income for 2017. But going forward for 2018, I cannot.
Though these new tax laws make it difficult to maximize non-taxable income, it’s worth noting that income taxes in general are now lower. This means that your taxable income will translate ever so slightly to more take-home pay.
Lastly and most importantly, even if you are qualified and have followed through with all these steps, 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 paper trail of how you are maintaining a permanent home and paying for doubled living expenses. Always keep copies of mortgage or rent payments to both homes that that you’re staying in during assignments and returning to between travel assignments.
If you claim shared expenses, always have proof of the gas, electric, cable bills (etc.) under your name. In addition, keep copies of receipts for rental cars, mileages used to get to/from assignments, and/or flights to/from assignments. Finally, 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.
There are many apps and websites available to assist you with organization in expenses and record keeping. Here are some suggestions to help you get you started:
- Expensify: Easily scan and track of all your receipts, reimbursements, and bills.
- The Grizzly Labs: Track and scan important paper documents (without capturing terrible lighting, shadowing, etc).
- Google Drive: Best for those who use Gmail. Most comprehensive way of utilizing 15GB of free space to store and share all your files of tax documents without having to use email attachments. These files can include videos, pictures, and Microsoft documents such as Word and Excel sheets.
- Turbo Tax: Easily file all end-of-year tax returns including mortgage, banking, student loan, and investment statements.
This is also a helpful guide to more IOS compatible apps to assist in finding the app that best fits your needs. Their app suggestions include thorough explanation on scanner quality, user friendliness, organization capability, and if there is a fee.