Comprehensive Guide to Travel Nurse Taxes
Navigating taxes can be a bit different for travel nurses, compared to traditional staff nurses. From tax homes to keeping your receipts to knowing exactly how your income will affect your long-term financial goals, here is the information you need to know about travel nurse taxes.
Travel nurse income breakdown
Travel nurses are paid differently than staff nurses, because they receive both a base hourly pay that is taxed and additional “payments” that are non-taxed to make up their “total” pay. When you sign up to commit to a travel nurse position, you’ll receive a pay package, which will detail all of the different aspects of what will make up your actual compensation.
Essentially, it’s in the travel nursing agency’s benefit to keep the base rate of a travel nurse’s pay package low, so many travel nurses have a modest base pay, but will have additional stipends that they receive. In a technical and legal sense, those additional stipends — which typically cover things like meals, housing, and work-related expenses — are expense reimbursements for doing your job as a travel nurse, which is why they aren’t considered income and are non-taxable.
In many cases, because travel nursing agencies rely on software management tools that charge by a percentage rate, it’s in the travel nursing agency’s benefit to keep the base rate of a travel nurse’s pay package low. That means travel nurses often make more than their modest base pay based on the additional stipends that they receive.
MSPs offer “standardized” bill rates. This means that there is one rate for all workers with any given license covered by the contract. For example, all Registered Nurses have the same bill rate, all Physical Therapists have the same bill rate, and so on. It’s also possible for the licenses to be broken down by specialty and every so often by level of experience. For example, Medical Surgical and Telemetry Registered Nurses have one rate while all other Registered Nurses have another. Or, Registered Nurses with 1-3 years of experience get one rate, while those with more than 3 years of experience get a slightly higher rate. The important thing to understand is that standardized bill rates are set in stone by the contract for all intents and purposes. There is no possibility of negotiating a higher bill rate based on a particular travel nurse’s salary history or work experience.
Joseph Smith, EA/MS Tax, an international “taxation master” and founder of Travel Tax, explains that in addition to their base pay, most travel nurses can reasonably expect to see $20-$30,000 of non-tax reimbursement payments in a typical year of work as a travel nurse.
Qualifying for non-taxable income
In order for you to avoid being taxed on those reimbursement payments, however, you need to clearly prove that you have what’s called a “tax home” to the IRS. 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.”
Smith explains that you can qualify for a tax home in two main ways:
- You can prove you have a tax home if your primary area of residence is also your main area of income. Because travel nurses typically don’t have that, they move on to the second step, which is…
- 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.
If you can’t prove that you have a tax home, or don’t meet the qualifications for having a tax home, you will be taxed on the stipend payments you receive as part of your travel nurse pay package. Additionally, Smith cautions that most travel nursing agencies will not verify that you qualify for a tax home, so it’s up to you the travel nurse to ensure that you are meeting all requirements for establishing a tax home in order to collect your non-taxable stipends.
According to an article in Nursing, travel nurses can take the following steps to ensure that they qualify for a tax home in the eyes of the IRS:
- Keep proof of any payments you are making to show that someone else is maintaining your primary residence. For instance, things like receipts for a house sitter, mortgage, rent, utilities, or home maintenance expense.
- Maintain your driver’s license and voter registration in your home state.
- Keep your car registered in your home state.
- Keep a per-diem position, if possible, in your home state.
- Return to your permanent home at least once every 13 months.
- File a Residence Tax Return with your home state.
Lower taxable income considerations
Although at first glance, having non-tax stipends may sound like a great deal for you as a travel nurse, it does come with a catch: because the additional stipends you receive as a travel nurse are not taxed, they are not considered income, and as such, will not be reflected in your annual income. That may not sound like that big of a deal, unless you find yourself in need of a loan, mortgage, disability payment, or are nearing the age to collect Social Security. All of the aforementioned items are calculated based on your income; the lower your income, the lower the loan amount you will qualify for, for example. Or, the lower your income, the less you are contributing to Social Security and the less you will be eligible to collect when you’re ready.
If you know that you will be needing a loan or a mortgage in the near future, Smith suggests talking to them as far in advance as possible to explain your situation and plan ahead. Working with a lender who is familiar with the pay structure for travel nurses can also be helpful. In some circumstances, such as nurses who are nearing Social Security age, it may also be more helpful to legally declare that you don’t have a tax home on your tax return, and instead, pay taxes on all of your stipends, so you can count it as taxable income.
What about state taxes?
Travel nurses should plan on filing their taxes by the April 15th deadline, just like everyone else in the United States, although there may be a little wiggle room for extensions due to the nature of being a multi-state professional as a travel nurse, according to Smith. Nursing explains that every state has different laws for filing taxes, but travel nurses must file a non-resident tax return in every state they have worked in, as well as the state that’s your permanent tax home.
Travel nurse tax tips
Smith advises travel nurses keep a receipt book to help them make tax preparation a little easier by having all of their paperwork in one place. Although digital receipts may be more convenient or “modern” for younger nurses, keeping paper copies as well is always preferable. Your receipts can include things like:
- Housing and lodging expenses while traveling
- Mileage travel
- Uniform and scrub expenses
- Work-related expenses, such as continuing education courses or certifications you must maintain to keep your position
The new tax reform laws did away with job expenses at the federal level, which Smith explains on his website, but a handful of states still allow job expense deductions, such as New York, California, Alabama, Hawaii, and Arkansas, so there may be additional tax deductions you can make if you’ve worked in a qualifying state.
Smith also adds to be careful when filling out residency on your tax return, as he sees many travel nurses make the mistake that working a travel assignment means they have moved; however, working a temporary (under 12 months) travel nursing position does not qualify as a move of your permanent residence — instead, they are just away from home temporarily and that’s an important distinction to make come tax-time.
Can you get audited as a travel nurse?
The travel nursing industry as a whole does tend to be scrutinized closely, says Smith. As a travel nurse, you may be more at risk for an audit if you’re displaying high expenses and low income. For instance, if your mortgage is $10,000 a month, but your overall income with your base pay as a travel nurse is only $20,000 annually, the IRS may be puzzled as to how you’re actually affording your lifestyle.
You can reduce your risk of an audit, or increase your risk of getting through an audit favorably by always making sure to work with a certified tax professional who is familiar with traveling healthcare professionals and not solely relying on your nurse recruiter or travel staffing agency for tax advice.