Comprehensive Guide to Travel Nurse Taxes
For most full-time, salaried nursing professionals, completing a tax return isn’t usually too complicated, since it mainly involves a W-2 form and whatever other documents the individual normally files with.
However, for travel nurses, things can get a bit more complex since income often includes a combination of taxable and non-taxable income. Whenever that type of scenario exists, there are lots of IRS rules that dictate how things need to be claimed.
While you may opt to consult a tax professional to help you with any questions about how to file your tax return, if you’re considering becoming a travel nurse, it’s worth schooling yourself on some of these tax issues now since they will affect you going forward.
Travel Nurse Income Breakdown
First things first – travel nurses typically do not earn a straight paycheck that is completely taxable like most salaried RNs do. In fact, that’s a big part of the appeal of travel nursing jobs.
The perk for many is that a portion of a travel nurse’s compensation is tax-free. So in addition to a base salary (which is taxable, but often much lower than what a typical nurse would earn per hour), a travel nursing agency will also pay a daily rate to cover expenses such as room and board, a meal allowance, incidentals, travel expenses, etc. That reimbursement portion of your paycheck would be non-taxable.
It’s important to note that travel nurse agencies work differently, and vary in terms of how they pay their employees. When researching potential employers, be sure you understand exactly how much your reimbursements will be. For instance, some agencies actually supply housing while others just provide a daily lodging stipend.
Per Diem: This daily stipend or “per diem” rate is sometimes determined by the GSA (General Services Administration of the United States Government), and it varies by location. There is a maximum allowance that the government says can be allowed for lodging and meals and incidental expenditures (M&IE), for the area in which you plan to work. That’s not to say that an agency will pay this set amount, but it will not go over it.
Blended Rate: Keep in mind that when looking for travel nurse jobs, you’ll likely come across agencies’ advertised “blended rate” (which combines both taxable and non-taxable income). It’s up to you to find out how it breaks down.
Flexible Pay Package: Also worth inquiring about is whether the agency offers a flexible pay package in which the employee has some leeway to add on or subtract certain benefits (like 401K or licensing fees), or if the compensation formula is unchangeable.
Qualifying for Non-Taxable Income
As with all things tax code-related, there is some fine print you need to be aware of since not everyone automatically qualifies for this non-taxable perk. The major requirement is you must have a “tax home.” If you’re a travel nurse, the IRS says you must have a permanent residence that incurs expenses in order to qualify for non-taxable income.
In other words, having a tax home means you must pay a mortgage or rent; pay for utilities and other house-related bills; and have legal ties to a home address (including having a driver’s license in your home state, a permanent mailing address, and voter registration in your home state, etc.).
Do Not Rent Your Tax Home: Keep in mind that if you plan to earn income by renting out your tax home while you’re traveling, that will likely disqualify you from getting the tax-free income.
Contribute to Monthly Expenses: As for what is not considered a tax home, one example is if you live with a relative or a significant other who takes care of most of the home’s expenses. Unless you can show documentation that you personally contribute monthly to the care and maintenance of the residence, you will not qualify as having a tax home.
You can still take on travel nursing work even without a tax home, however, you will be considered an itinerant worker, and have to pay taxes on all of your earnings.
Don’t Stay in a Single City for Too Long: Another stipulation you should keep in mind is that working in one city for more than one year in a two-year span will raise red flags. Plan to return home between travel nursing jobs, or at least once per year, to stay off the IRS’ radar. Otherwise, it will seem as if you’ve taken up residence in another place, and thus have abandoned your tax home.
Keep Record of Everything: Lastly, filing taxes as a travel nurse means you must stay committed to maintaining meticulous records of your travels. That includes logging your mileage, and keeping copies of their travel nursing contracts. All of this documentation will make tax filing go smoothly.
If you’re considering travel nursing for its tax benefits, you’re not alone. They are very appealing to many who go into that line of work. However, you should be aware that there are some potential drawbacks.
Applying for Loans: First, because you are reporting a lower income, that could pose a problem if you are planning to try to apply for a home mortgage. Your nontaxable funds won’t count toward your income, and to a lending institution, that will negatively affect your debt to income ratio.
Social Security Benefits: Also, if you plan to do travel nursing for a significant number of years, it could ultimately lower the amount of money you’ll be eligible for from Social Security, since that amount is based on your taxable earnings during your working years.
Is It Worth It?
All in all, travel nursing does have a lot of appeal for RNs who enjoy travelling and taking their skills on the road. Financially, it can be quite lucrative as well, as long as you understand how it affects you tax-wise and can make it work for you.