Taxes for Travel Nurses
At Universal Tax Professionals, we specialize in taxes for travel nurses and other traveling medical professionals. Traveling can cause tricky federal and state tax issues and our goal is to make sure you pay as little federal and state taxes as possible. We offer a personalized approach that maximizes legitimate deductions and avoids ones that you’re not legally entitled to. The result is accurate returns, maximum saving and peace of mind.
Working as a travel nurse is an exciting possibility for nurses, offering the prospect of traveling and working wherever they wish, while receiving tax-free stipends to cover their expenses of travel, meals and housing.
But it’s crucial for nurses considering travel nursing to understand that certain IRS tax rules must be followed, in order to qualify for tax-free treatment of their travel, meals and housing expenses.
Adding to the complexity when working in different states is the tangled web of state tax rules: with the exception of 9 states (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming), each state taxes wages according to its own set of tax rules, and as a travel nurse, you may need to file a nonresident state tax return in each state you work in, as well as in your home state.
How Travel Nurses Are Typically Paid
Travel nurse income is usually structured as a pay package by the travel nursing agency, combining a modest base pay, paid at an hourly rate, together with stipend payments for travel, housing, meals and other essential work expenses.
It’s important to note that stipend payments are essentially expense reimbursements for the travel and living expenses necessarily incurred while working as a travel nurse, which is why they aren’t considered income and are non-taxable – provided that the IRS rules for tax-free treatment (which we will get to in the next section) are carefully followed.
Travel Nurses Must Have a “Tax Home” To Qualify for Tax-Free Treatment by the IRS
For a travel nurse’s stipends reimbursing travel and living expenses to qualify as tax-free under IRS rules, the nurse must establish what is known as a “tax home” – which is generally the city or area in which a taxpayer’s main place of work or business is located and where he or she earns the most income.
A tax home is not always the same as a taxpayer’s legal residence – the key issue is the location where most work is performed. For a travel nurse who is traveling and working far from home for long periods of time, being able to maintain a tax home while traveling and working elsewhere is critically important, to be able to qualify for IRS tax-free treatment of stipends.
If a taxpayer does not have a main place of work or business – the situation a travel nurse would find herself or himself in, due to extensive travel for work purposes – then under IRS rules, the tax home is then where the taxpayer maintains an abode or residence. But a taxpayer has to proactively maintain the tax home in this scenario – ties have to be maintained while away from home for an extended period, it cannot just be abandoned.
Also, the taxpayer must incur duplicate living costs while working away from his or her main tax home – paying for a hotel or renting some other type of lodging for an extended period, and for meals, transportation and other work expenses incurred while on a work assignment away from home.
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3 Things A Travel Nurse Must Do to Maintain a Tax Home and Keep “Away from Home” Expenses Tax-Free
1. Be Sure to Visit Your Home State While You Travel, and Keep Your Ties There Strong
Based on IRS guidelines, best practice for taxpayers temporarily away from home, such as travel nurses, is to return home for at 30 days during the year – and it’s even better if the 30 days is spread out over several trips home, rather than returning home for the year-end holidays.
It’s also very important to be able for a taxpayer to demonstrate that strong ties have been maintained with his or her tax home while away from home temporarily. Ties to a tax home can include:
- Continuing to make payments for a main home while away – mortgage payments, rent, utilities, home insurance, etc.
- Paying another person to watch the home while the taxpayer is away
- Maintaining and keeping current a driver’s license, auto registration, auto insurance and voter’s card in the taxpayer’s home state
- Using credit cards when returning to the home state for a visit
- Filing as a resident taxpayer in the home state
2. Travel Far Enough Away from Home So That You Are Duplicating Living Expenses
While there is no strict mileage requirement, in terms of far away the temporary work location is from a travel nurse’s main residence, it must be far enough away that duplicate expenses would need to be incurred, paying for a hotel or short-term rental to sleep in, and paying for meals – in other words, far enough away from home that it would be completely unreasonable, if not impossible, to commute on a daily basis from the nurse’s main home to the new work location.
3. Don’t Take a Work Assignment in One Place for More Than a Year
Travel nurses should take care not to stay working away from home in one place for too long – if a taxpayer’s principal place of work or business remains in a single location for longer than 1 year, the IRS would consider it to be the taxpayer’s new tax home. Best practice for a travel nurse would be to return to his or her main home well before the 1-year mark in the other work location is hit, before heading off to another work location – in addition to ensuring that a new tax home is not established, it reinforces, in the eyes of the IRS, that the travel nurse is keeping up strong ties with the nurse’s home state.
State Taxes for Travel Nurses: Resident State and Non-Resident States
Travel nurses should bear in mind that they must file non-resident tax returns in every state they have worked in, as their wage income will be subject to tax in every state in which they perform services (with the exception of the states noted above, with no income tax on wage income). As for the state in which they maintain a home residence, travel nurses will continue to be tax residents of their home states, responsible for paying state income tax there on their income earned everywhere.
Travel Nurses Working in Multiple States - Don’t Forget to Claim Tax Credits on Your Home State Tax Return, to Avoid Getting Taxed Twice!
Usually, a taxpayer resident in one state who works in another state is taxed on that wage income twice – once by his or her resident state in which the main home is located, and a second time by the state in which the services were performed. Travel nurses should ensure that they take available tax credits on their resident state tax return against their home state income, equal to the tax they paid in the other state, to avoid this potential double taxation situation.
Working as a Travel Nurse Employee? Make Sure Your Employer Reimburses Your Business Expenses, If Possible
Travel nurses who are employees should be aware that since the Tax Cuts and Jobs Act of 2017 was enacted, employees’ unreimbursed business expenses can no longer be deducted as itemized deductions on Schedule A. Employer reimbursement of a travel nurse’s travel, housing, meal and other work-related expenses via per diem allowance or other type of stipend will prevent the nurse from being out of pocket for any expenses incurred while traveling – with the added benefit of being tax-free, as long as the “away from home” tax rules outlined above are followed.
Keep In Mind: Accurate Record-Keeping Is Critical
In case of an IRS (or state) audit, a travel nurse should be sure to keep accurate and complete records of all of their travel, housing, meals and work-related expenses while working on extended periods away from home, to be able to substantiate that the per diem allowances or other stipends paid to them qualified as tax-free.
Both paper and digital receipts should be retained for:
- Rental housing, hotel or other lodging expenses incurred while traveling
- Utilities paid for rental housing or other lodging
- Airfare and car rental expenses (if applicable)
- Auto expenses (gas, tolls, parking, etc.)
- Meals incurred while traveling
- Work-related expenses (including professional certifications, continuing education courses, nurse scrubs or uniforms)
Another useful tool for travel nurses to substantiate their business travel is to maintain mileage logs for their travel by auto.
Do you have questions about taxes for travel nurses? We’re here to help. Contact us today and one of our tax professionals will reach out at their earliest convenience.