Navigating the world of taxes when you take your first travel nurse job or allied health assignment can feel like a daunting task. With unique income structures, tax homes, and multi-state tax filing, it's no wonder that tax season can feel overwhelming.
But don't worry! This comprehensive guide will help you understand the ins and outs of travel nurse taxes, travel nurse stipend rules, travel nurse tax homes and tax deductions, and other tax rules you should be aware of while traveling! Keep in mind that individual circumstances can greatly impact your taxes and stipend eligibility, so be sure to connect with a tax professional for personalized advice!
Let’s get started!
- Understanding Your Income
- Contract Types
- Qualifying for Stipends
- State Taxes
- Lower Taxable Income Considerations
- Audits and Travel Nurse Taxes
Travel Nurse Taxes: Understanding Your Income
Travel nurses and allied health professionals have a unique income structure compared to traditional staff. You can read our blog on how much travel nurses make to learn more details, but we’ll go ahead and provide a quick overview!
Travelers receive a portion of their pay that is taxed and “per diems”, or stipend payments, that are not taxed. Stipends can be a huge advantage of travel nursing because if the full amount is not used on your travel and living expenses, that leftover ends up as extra cash in your pocket! You can think of stipends as an allowance for lodging, meals, and incidental expenses while you’re working away from home. It’s important to remember, though, that you must meet certain criteria to be eligible for stipends and avoid any issues with the IRS! We’ll get into those details soon.
Contract Types: Travel vs Local Contracts
It’s also important to understand that you don’t have to qualify for stipends, or choose to receive stipends, in order to take travel assignments. There are some circumstances in which someone may prefer for their income to be fully taxed. This may be because they don’t qualify for stipends due to location or because they’re anticipating a loan, social security, or anything else that is based on taxable income. In these cases, you can still take a travel assignment, but choose to take a contract where your hourly rate is higher and your pay is fully taxed. This is referred to as a local contract. If this is the case for you, be sure to let your Nurse Advocate know!
Travel Nurse Stipend Rules: Qualifying for Non-Taxable Income
To qualify for tax-free stipend payments, you need to be able to show the IRS that you have a "tax home". The IRS defines a tax home as “the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home.” This may sound a little bit confusing, so let’s break it down.
You can qualify for a tax home in two main ways:
- Your primary area of residence is also your main area of income. This typically does not apply to travel nurses, but would be applicable for a staff nurse who is working at their local hospital because they are living within the same geographical area where they are making most of their money throughout the year.
- You visit your primary residence at least once every 12 months and can prove that you are paying for expenses to maintain your primary home. This is more common for travel nurses and allied health professionals. Generally this is where you have lived and have worked a staff job that has been your “main place of business”. You should be able to show that you still regularly return to this location and incur expenses such as a rent or mortgage, even while you’re working on a travel assignment.
In general, travel nurses and allied health professionals can take these steps to maintain a tax home:
- Keep proof of payments that show that you’re incurring expenses at this location. This may include invoices for a house sitter, mortgage, rent, utilities, etc.
- Maintain your driver’s license and car registration in your home state.
- Keep a per-diem job, if possible, 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 important that you’re able to show that you’re duplicating expenses by traveling, meaning you’re paying for the same types of expenses at your tax home and while on assignment in your new location. This means that if you rent out your home while you’re gone, you cannot classify it as a tax home, because you’re not duplicating your expenses.
Travel Nurse Tax Rules: State Taxes
It’s important to know that as a travel nurse or allied health professional, you need to file taxes in every state you work in, as well as the state that serves as your permanent tax home. Keep in mind that working a travel assignment (under 12 months in one location) does not mean that you have moved your primary state of residence in the eyes of the IRS. Instead, you’re just away from your home temporarily, which is the important distinction noted above in regard to maintaining a tax home.
In 2022, tax reform laws did away with many deductions at the federal level, but some states do still allow you to deduct job expenses on your state tax return. It’s a good idea to keep receipts for things like:
- Housing and lodging expenses while traveling
- Mileage to and from assignment and to and from work while on assignment
- Uniform and scrub expenses
- Work-related expenses such as CEU’s or certifications
- Meals while on assignment
Keeping record of these expenses can help make tax preparation easier. It’s a great idea to snap a picture of these on your phone or use a document scanner app to keep these organized as PDF files, ready to submit with your taxes.
Lower Taxable Income Considerations
One of the appeals of travel nursing is that you have the potential to make a high income, especially through non-taxed stipends if you qualify. However, because the additional stipends you receive as a travel nurse are not taxed, they are not considered income, and will not be reflected in your annual income.
So what does that mean, exactly? If you’re anticipating that you may need to get a loan or mortgage, or nearing the age when you’ll collect social security, you may want to consider taking a fully-taxed pay package. All of these items are calculated based on your taxable income. The lower your taxable income, the lower the loan amount you will qualify for. Similarly, the lower your taxable income, the less you are contributing to Social Security, and the less you’ll be able to collect when you’re ready to retire.
You still have options in these cases, though. Some lenders are familiar with working with travel nurse pay structures and can be helpful in planning for your loan or mortgage. Another option is to declare that you are not eligible for stipends, or do not have a tax home, and receive your full pay as taxable income. You should speak with your personal tax consultant to see what will be best for your situation.
Audits and Travel Nurse Taxes
Because of the low taxable income you receive in addition to stipends, the travel nursing industry tends to be scrutinized closely by the IRS. As a travel nurse or allied health professional, you may be more at risk for an audit if you're displaying high expenses and low income.
We say this not to worry you, only to highlight the importance of working with a trusted tax professional. You can reduce your risk of an audit, or increase your chances of getting through an audit favorably, by always making sure to work with a certified tax professional who is familiar with traveling healthcare professionals.
Travel Nurse Tax FAQs
How do I receive stipends?
As long as you indicate that you are eligible for stipends when you sign your contract, you will automatically receive stipends as part of your paycheck each week. They're considered expense reimbursements that cover expenses like meals, housing, and work-related costs, but you do not need to submit receipts in order to receive the payment. Be sure to read the section above and check in with your tax consultant for 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 you've worked in within the past year, as well as the state that you consider your permanent tax home.
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 for 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?
The travel nursing industry tends to be scrutinized closely by the IRS, so you may be more at risk for an audit. Working with a certified tax professional can help you navigate this risk.
What happens if I extend in one location for >12 months?
It's best to consult your tax professional as to how you handle your contract as you approach the one year mark! The answer to this question will depend on your unique circumstances. We do offer local (fully taxed) contracts, or some nurses choose to take some time off between contracts, then extend. Since everyone's situation is different, your tax advisor would be the best person to consult. Once you do so, let your Nurse Advocate know how we can help!
Can I handle my taxes myself, or should I hire a professional?
While you can handle your taxes yourself, it's often beneficial to work with a tax professional who is familiar with the unique tax situation of travel nurses. They can help ensure you're meeting all tax obligations and taking advantage of any potential deductions.
What records should I keep for tax purposes?
You should keep records of all your income, including your pay stubs and W-2 or 1099 forms, as well as receipts for any tax-deductible expenses. This can include receipts for travel, housing, meals, uniforms, continuing education, and any expenses related to maintaining your tax home. You’ll also want to make sure that you save a copy of each assignment you take, showing your contract dates and pay breakdown.
Final Thoughts on Travel Nurse Tax Rules
Stay informed, stay prepared, and you'll be able to focus on what you do best - providing exceptional care to those who need it most. Remember, this guide is meant to provide general information and should not be considered tax advice. Always consult with a tax professional to ensure you're meeting all tax obligations and taking advantage of any potential deductions.
At Trusted Health, we're here to support you every step of the way. From finding the perfect assignment to helping you navigate the complexities of travel nurse taxes, we're committed to making your travel nursing journey as smooth and rewarding as possible.
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