Understanding Travel Nurse Taxes
When April rolls around you know it’s tax season! Travel nurse taxes work a lot differently than a staff nurse’s taxes. Taxable and non-taxable income, tax home, and if the states they traveled in had an income tax are all variables that need to be considered. Travel nurse taxes can be a confusing process so we always recommend consulting a tax professional! In this blog we try to make travel nurse taxes easier to understand.
Taxable Income and non-taxable income
As a travel nurse you can qualify for non-taxable income called stipends. These stipends are not taxed since they are classified as reimbursements for housing, travel, and meals. Travelers love these because if they do not use the full stipend amount, they can pocket the extra. So it acts as a bonus but it is not taxed by the IRS. Not all travel nurses qualify for this tax-free money. To qualify, you need to prove that you are duplicating your living expenses.
Ever wonder how much travel nurses make working full-time? We broke it down for you based on state!
On the other side of the coin, some nurses prefer taxable income. I know what you are thinking, “why would someone want to pay taxes??” The catch is things like social security, loans, and worker compensation is based off a taxable wage. So if you need a loan for a new car or new home, you might get quoted a lesser amount since your tax-free money won’t be included in the calculation. Social security contributions are also calculated off of taxable income. They calculate your benefit based on your 35 highest earning years. This will only effect you if you travel nurse for many years. However, you should still be aware of the ramifications.
Understanding “Tax Home” vs “Permanent Home”
As a traveling nurse you can claim tax deductions for expenses you incur while away on contract. The IRS bases your eligibility for stipends on a taxable home. A taxable home is the geographical location where workers earn a majority of their income, which may not be the same as their permanent home. For staff nurses, their taxable home is most likely their permanent home too. For travel nurses who do not have one work location their taxable home will most likely be different from their permanent home. This could quite literally be the city your assignment is in. A tax home is not where you lay your head at night or your short-term housing, it is the area you make the majority of your money. This is a great example from Investopedia.
For example, if an employee lives in New Jersey but works in New York City, the tax home is New York City. In this example, travel, meals, and lodging expenses in New York City cannot be deducted since that is the individual’s tax home. Travel expenses to New Jersey on the weekends cannot be deducted since they would not be work-related expenses. However, if the same worker travels for work to Chicago, any travel, meals, and lodging expenses may be deducted.
What If You Travel To Multiple Places in a Year?
Travel nurses can work in multiple states and locations in one year. So how would a travel nurse determine one tax home? These are some criteria that helps determine a tax home.
- How much time you spend in each place
- Quantity of work you actually do in each place
- The income you make in one place
The IRS puts the most importance on time spent in each location. So if you extended a contract in one location and stayed there the longest, that would probably qualify as your tax home.
How to Prove You Have a Taxable Home
Since travel nurses are constantly on the move it can be hard to prove a taxable home. You must meet one of two criteria to prove you have a taxable home to the IRS.
- Be able to prove you visited your primary residence at least once in the year, and are also able to prove that you have financially maintained that residence
- Prove that the area in which your primary residence is located, is also the same area in which you earned the most income last year
Since travel nurses normally don’t earn the majority of their income in the location of their permanent residence, they would choose option one.
State Income Taxes as a Travel Nurse
A state income tax is a percentage of your income that you pay into the state government. The amount you pay in varies on the amount of money you make. Currently 41 states have income tax. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the select few that will not tax income. These states may be more attractive to travel nurses for this reason! Here is a list of best states for nurses to work and live in.
Travel nurses travel the nation bouncing between states and assignments. If you worked in multiple states throughout the year you will need to pay state income taxes in those states (except the nine states listed above). Travel nurse taxes can get confusing so always consult a tax professional! The amount of money you pay for a professional, will be worth it! They know all the ways to ensure you get the most money back in your pocket and that your taxes are done correctly.
Travel Nurse Tax Advantages
Aside from traveling the nation, many travelers start travel nursing for the high earning potential! The high earning potential comes from the high demand for nurses, but also from tax advantages. These tax advantages can come in the form of travel stipends and reimbursements. Primarily you will see tax-free money or stipends being utilized by agencies.
Travel Nurse Stipends
Travel nurse stipends, also known as tax-free money, are one of the many awesome benefits of travel nursing. These stipends cover duplicated living expenses like housing, travel, and meals. These stipends are not reported as taxable income as long as you are duplicating living expenses. For example, you are duplication expenses if you are still paying for utilities at your permanent family home but are renting short-term housing in your contract location.
Travel nurses won’t experience reimbursements as commonly as they will travel stipends. When an employee pay out-of-pocket for business-related expenses the employer will pay that employee back in the form of reimbursements. Reimbursements are tax-free. Make sure if your agency reimburses that you are saving all receipts. This is proof of payment you can attach to the expense report. Without receipts, you will not be reimbursed.
Can Travel Nurses Get Audited?
Yes, travel nurses can get audited by the IRS. Travel nurses are more likely than the average Joe of getting audited. This is because of an array of reasons but most commonly because income compared to expenses can look suspicious. This is because of the reimbursed expenses and stipends. Here are some other reasons travel nurses may get audited.
- IRS wants to see proof of pre-reimbursed expenses
- Your travel nursing agency is getting audited
- Your tax returns are not considered “normal”
- You received a low taxable income for the year
These are just some common reasons travel nurses get audited. However, sometimes audits are just randomly chosen. In that case, it could be just bad luck.
How to Prepare For an Audit
Although we can hope the day never comes, you should still have the documentation ready just in case. The IRS can audit a tax year from three or four years ago, so it is important to hold onto financial paperwork. Here are some examples of documents you should keep.
- Credit card statements
- Travel nurse contracts
- Bank receipts
- Pay stubs
- Mileage logs
Most importantly comply with IRS requests and hire a tax professional who specializes in travel nursing. You don’t have to go through an audit alone!
Travel nurse taxes can be confusing, but don’t let that get you overwhelmed. All-in-all the good in travel nursing outweigh the frustrating bits. When in doubt, talk to a professional tax professional to guide you and help with the technical tasks. You got this!
Also read our other articles about travel nursing!
Also read our other articles about travel nursing!