Our Guide To Surviving Tax Season As a Travel Nurse
If you’re new to travel nursing, you are probably new to travel nursing taxes. Maybe you clicked here and are just now realizing that your tax situation will change if you quit your normal job and take a travel nursing job.
Although, yes, the tax situation is complicated, it’s not impossible for even non-number people to make sense of.
That being said, we are going to recommend that you have a professional file your taxes. With all the variables that go into reporting travel nurse earnings, it’s worth the $XX for the ease and peace of mind that you won’t attract an audit or cheat the system accidentally.
We are not lawyers or tax advisers. We simply want to point out some things that you need to start thinking about when it comes to travel nursing taxes. Please seek a professional before taking your first travel nursing assignment.
What You Need To Know: Your Tax Home Is Everything
First things first, your tax home is an extremely important concept to understand because it can drastically change how much your travel nursing pay package is actually worth.
But how? As it stands, most travel nursing agencies assume that you have a tax home. That means they can offer you tax-free benefits like sign-on bonuses, meal allowances and housing stipends for doing work away from your tax home.
As soon as you forfeit a tax home, you end up owing tax — sometimes as high as 30%! — on all that money the agency gave you, which could negate the benefit of those of those extras (you might have been better off negotiating for a higher hourly rate, that’s already taxed, but at a lower rate).
So What Is A Tax Home, Then?
In the eyes of the IRS, this is where you make the majority of your income and pay the majority of your taxes. Believe it or not, it’s not entirely dependent on where you are registered to vote or what your driver’s license says, although it’s easiest to “prove” a tax home if those documents match where you make the most money.
Of course, if you’re a travel nurse, “the majority of your income” gets pretty vague! If you really love travelling, you might be in a different place every three months, meaning you’ve earned more or less the same amount in four different locations. And you might have “up and left” your hometown and have no financial responsibilities there.
If that’s honestly the truth, then you cannot qualify for a tax home, and will, therefore, have to pay taxes on all those “extras.”
So How Do I Keep A Tax Home?
The IRS has three criteria which help determine your tax home:
- Whether the taxpayer performs a portion of their business within the vicinity of the declared tax home and uses the declared tax home for lodging purposes while performing business there.
- Whether the taxpayer’s living expenses are duplicated as a result of their traveling for work.
- Whether the taxpayer has not abandoned the declared tax home. This is typically determined by how frequently the taxpayer uses the declared tax home for their own personal lodging and personal business, and whether or not the taxpayer has direct family members living in the declared tax home (Blum and Coppage).
If you meet all three criteria, you are good to go. This is likely the case right now in your permanent position.
If you meet only two of the criteria, then things get a little more “iffy.” In other words, if you were ever questioned on your tax situation, you’d have to prove that you truly qualify for your tax home status by proving that you meet two of the three criteria.
If you meet only one criterion, you have no tax home and are an “itinerant worker.”
Your goal as a travel nurse is to meet two of the above criteria as certainly as possible, and all three if you can (although that’s pretty challenging to do as a travel nurse).
Keep in mind that you cannot stay in one “travelling” location for more than 12 months without that location becoming your permanent tax home. So if you work four assignments in Phoenix, it’s officially your tax home even if you’ve been paying rent in Boston. All those tax-free extras you’ve been getting? Those are officially taxable — sometimes up to 30 percent!
The Easiest Way to Keep A Tax Home
Let’s start with the easy way out. This isn’t necessarily the inexpensive route, but this would be a good way to guarantee your tax home status:
#1 Pay rent or a mortgage in your home state (or whatever state you want to be your tax home) and keep records that you are doing so (such as a signed lease with your name and address on it, and a record of payments).
#2 Keep a personal address, driver’s license, voter registration, etc. all at that location. Have your mail sent to that home address, make sure your bank account was opened in the area, and go home as often as possible, keeping personal connections with friends and family in the area.
Those two items would satisfy the last two requirements from the IRS.
Remember: This rent should be reasonable for the area, meaning that if your parents “rent” you a room for $50/month in an area where that room would be worth $400, the IRS won’t be too happy.
And unfortunately if you own a home and pay a mortgage, but primarily rent it out (to recoup the mortgage costs), you can’t count that as your tax home unless you also live there for a decent chunk of the year, and work and pay taxes “normally” (as in, you aren’t getting tax-free benefits from an agency).
Of course, if you come from a state with a high cost of living, that’s a real bummer because you are double-paying for housing and it’s unlikely that your housing stipend would cover housing in two different cities. However, it’s one of those “just the way it is” situations.
I think it’s helpful to hear straight from the IRS in one of their examples to help you better understand how the IRS determines your tax home when it comes to satisfying those two criteria:
You are single and live in Boston in an apartment you rent. You have worked for your employer in Boston for a number of years. Your employer enrolls you in a 12-month executive training program. You don’t expect to return to work in Boston after you complete your training.
During your training, you don’t do any work in Boston. Instead, you receive classroom and on-the-job training throughout the United States. You keep your apartment in Boston and return to it frequently. You use your apartment to conduct your personal business. You also keep up your community contacts in Boston. When you complete your training, you are transferred to Los Angeles.
You don’t satisfy factor (1) because you didn’t work in Boston. You satisfy factor (2) because you had duplicate living expenses. You also satisfy factor (3) because you didn’t abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Therefore, you have a tax home in Boston.
See how that helps make things clearer?
Your More-Complicated Option
But that example doesn’t help you fulfill criterion #1. If you don’t want to pay duplicate living expenses, you must meet the first criterion, as well as the third (keeping personal ties to your tax home in terms of bank accounts, driver’s licenses, etc.),
To meet the first, you need to prove that you are doing the majority of your money-making at your tax home. In other words, the majority of your business life (not personal affairs) must be conducted in that tax home state.
Therefore, you need to work in your home area for at least three months of the year, pay taxes on everything you earn in that location, and make sure to earn the majority of your income in that home state.
That means you can’t work 6 months in Phoenix if you want Boston to be your tax home and you only worked there for 3 months. You’d need to take 3 other assignments in 3 different cities, and at least one assignment in Boston where you pay taxes on everything earned.
Again, get the help of a professional when trying to determine if you meet the first criterion, because it’s certainly the most challenging one to prove.
And as a general rule, no matter which of the three criteria you are trying to meet, you cannot work in one place for more than 12 months without that place becoming your tax home. Even if you didn’t intend to live in Phoenix for 12 months, but just really loved it and kept signing on for another contract, you will end up forfeiting your tax-free status if you are there for more than 12 months (in a tax year).
I Can’t Keep A Tax Home: Now What?
If you’ve read through our advice and are thinking there’s no way you can travel and keep a tax home, don’t give up yet. First, make sure to consult a professional and ask them to help you come up with a “tax home” solution. If they, too, determine it’s not possible, then remember: Not having a tax home isn’t the end of the world.
It just means you have to pay taxes on all your earnings (which, honestly, most people are doing anyway), and that you need the agency to be ok with that arrangement.
First, remember when we went through what a travel nurse actually makes? Go back to that post and look at all the factors, this time realizing that all those housing stipends, etc., will no longer come to you tax-free.
If you do the math and still come out making a fair wage — go for it! Want to know your tax rate? A professional can help estimate that for you. If after all those considerations you still think that the benefits of travel nursing outweigh the “bummers,” you can take the position.
But hold up! You need to ask your agency if they’ll still take you on if you don’t have a tax home. There are other legal issues that your agency, as an employer, has to keep in mind if you don’t have a tax home. Like you, they don’t want to get in trouble with the IRS. This means they may force you to sign paperwork saying you have a legal tax home. If you know you don’t have one — don’t sign it! Look around for an agency that will keep you on despite your tax-home-free status. They do exist: Check out our ebook of more than 150 travel nursing agencies to find the right one for you.