While travel nursing is a ton of fun, figuring out your tax situation is one of the most important pieces of the puzzle that is sometimes not so fun. There’s a lot of information to learn regarding tax homes, income tax and rules for how long you can stay in one place. KNOW THE RULES or you can land yourself in a world of hurt with the IRS.
First things first: getting paid!! Many travel agencies will pay you weekly, but you will need to establish this for certain with your recruiter. Travel nurses are paid in 3 parts:
*Hourly Rate
*Housing stipen
*Per Diem
This is paid in one lump sum on your weekly paycheck, just like you would be paid in a permanent nursing position.
Next up: establishing if you are going to have a tax home or not. A tax home is your permanent address that you will maintain while travel nursing. When maintaining a tax home, the per diem and housing portions of your pay will be tax free providing you with approximately a $4000-$6000 tax break each year. This is because your housing and food/daily expenses are seen as duplicate expenses that you are being reimbursed for instead of straight income. This tax break sounds awesome, however, there are lots of rules that need to be followed to keep the IRS away!!
Here’s the skinny. Your tax home has to be somewhere you actually have a financial commitment to which means: it cannot be a PO Box, storage unit or your parents house for free. Wherever your tax home is, there must be a paper trail showing you paying rent each month [or just regularly]. So just pay your parents $50/month and call it good, right? WRONG. Your monthly payment must meet “market price” and last time I looked, that was $250/month. When I traveled, I rented a room from a friend and paid $300/month [cushion room, right?] just to be safe. You also need ties to the area to validate it being a true tax home. This means you need things like bank accounts, a drivers license, your car registration and mail delivery set up using this address to link you to the area.
The IRS is “flagged” by certain things so to keep them away, follow these tips. DON’T change your drivers license, car registration, address on bank accounts, insurance forms or legal paperwork to your temporary location where you are doing your travel assignment. First of all, that is silly if you are only going to be there for 1 or 2 assignments; way more paperwork than necessary and confusing for filing taxes later on. LEAVE THINGS AS IS. Also, have your mail sent to your permanent address! Figure out how to pay your bills online to avoid issues with getting mail and have a friend/family member monitoring your mail. What I did was file a TEMPORARY change of address with the post office for each assignment I did to have mail forwarded to me. If all of this sounds like way too much work/stress/etc., then elect to not have a tax home. You will still be paid housing and a per diem, however, it will be taxed (remember, this will cost you around 4-6K annually).
Moving right along: state tax returns and income tax. When it comes time to file your taxes, you need to know if you live in a state with no income tax, high income tax or just a regular state [literally don’t know what to call them besides that…].
No income tax states include:
Alaska
Florida
Nevada
South Dakota
Texas
Washington
Wyoming
Tennessee*
New Hampshire*
*= these states collect income tax from dividends and interest but not personal income. CLICK HERE to learn more.
High income tax states include:
Maine
Maryland
Minnesota
Montana
New York
Then it is time to file your taxes. In addition to filing your federal income tax, you will also need to file a state tax return in each state that you worked in throughout the year (AS A NON RESIDENT…this is VERY important.) as well as the state serving as your permanent address or tax home. When you go to file state taxes in your tax home state, you will get credit for what you paid to other states on this same money. If you live in a no income tax state, you don’t have to file a state tax return for that state. If you live in a high income tax state, you may owe even more money to your tax home state than you already paid to the states you actually worked in…which really sucks.
Before you go, there’s one more rule you should reeeeally be aware of. It’s called The 12 Month Rule. It says that you may not stay in one state for more than 12 months without it becoming your tax home. A stay of more than 12 months signals a permanent home with the IRS instead of a temporary stay. The kicker with this one is even if you are far apart for assignments but within the same state, it still messes with your tax home. For example, you spend 6 months working in Los Angeles, and then 3 months working in San Diego and then 3 months working in Napa…you’ve been in California for a year and, congrats, it is now your new permanent tax home according to the IRS. Be aware of this so you don’t over stay your welcome.
Pro Tip: It is a really great idea to keep a travel log for yourself!! Include in it exact dates with mileage, meal costs, parking costs involved in going to work, etc. so you have a detailed account of all your spending, should the IRS come knocking at your door.
Finally, I want to leave you with my biggest piece of advice: your recruiter, however kind and friendly they may be, may encourage you at times to enter into the grey area of IRS compliance to better suite both of your agendas. But you need to know: they will be gone like a fart in the wind should you get audited. Home girl [or guy] will NOT be there holding your hand while you talk to the IRS and end up paying in thousands of dollars because you tried to bend the rules. Your travel company does not offer protection for this so you are on your own to make sure you protect yourself and know the rules well!! Want a second opinion? Click here.
Responsible travels <3