Deciphering the travel nursing pay structure can be complicated. Tax homes, tax-free stipends, hourly wages, bonuses, benefits, housing, and per diem reimbursement are all factors to consider when understanding your travel nursing pay and taxes. 2021 has been a unique year for travel nurses and some pay packages were different from traditional travel nurse pay, further complicating the travel nurse tax topic.
Travel Nursing, Tax-Free Stipends, and Permanent Tax Homes
There are two ways you can be paid as a travel nurse. Travel nurses are paid a ‘blended rate’ of tax-free stipends and taxable hourly wage; or, are paid a fully taxable hourly wage taxed on the total rate of pay.
Unfortunately, you can only receive the tax-free stipend option if you can claim a ‘permanent tax-home’. You must be able to prove that you contribute a ‘reasonable monetary amount’ (determined by the IRS) to a home that you own or rent in a location at least 50 miles from your travel assignment. If a travel nurse claims a rented room or apartment as a tax home (for example, at your parents’ house), the monthly amount paid must be comparable to similar market prices in the area. If you own a home and rent it out while you are gone, you must claim that as income on your taxes. If you claim a permanent tax home, you must prove you are duplicating expenses if you are audited.
You will be required to complete and sign a declaration of your permanent tax home with your travel nursing agency if you choose to take the tax-free stipends in your pay. It is wise to ask in advance what you will need as proof of a tax home so you can prepare any necessary paperwork.
If you cannot prove you duplicate expenses and maintain the cost of living on a home, you are required to be taxed on the total hourly wage. This may seem like a disappointment but isn’t necessarily a bad thing.
Taking the tax-free pay means that your yearly income will appear much lower on your W-2 than what you actually received in pay. This means if you want to apply for any sort of credit or loan, you may not be approved because your income appears to be less. This is an individual decision for each travel nurse. Look at your finances and see what is right for you.
Travel Nursing Hourly Taxable Wage
If you are eligible for a ‘blended rate’ of tax-free allowances and hourly wages, your hourly taxable rate is going to appear much lower on your pay stub than you may be expecting, don’t panic, this is normal. When you get your W-2, you may be shocked at how low your income looks. You do not owe any extra money on the stipends you received, and they will not be included on your W-2.
This is only the amount you are taxed on per hour, not your total pay. Ideally, your ‘blended rate’, the combination of your stipends and hourly wage should be $40-$80/hour depending on the location and travel nursing specialty. If it is a crisis rate or short-term strike assignment, your salary is going to be considerably more than the average travel nurse job.
If a travel nurse is not qualified to receive tax-free stipends the rate will be the similar $40-80/hour but taxes will apply to the whole amount. You will still make more money than the average staff nurse in most states.
2020 Crisis Contracts and Travel Nurse Tax Changes
2020 took many travel nurses to places with crisis contracts that were paying well above the average rates that we usually see. Many of these contracts had very high hourly taxable wages and little to no stipends. In many cases, a hotel was provided to the nurse in addition to very high pay rates. This means that many of travel nurses who will be reporting a much higher taxable income may have bumped up into a higher tax bracket and could pay up to 10% more in taxes if they consistently worked super high paying contracts. Most won’t see such a large increase, only nurses that spent 4+ months working contracts paying $10,000/week.
Nurses looking to reduce tax burden can invest their hard earned cash into a tax free option like a Roth IRA. Having a CPA or tax advisor can be helpful in managing finances as a travel nurse.
What Does Claiming Exempt on Taxes Mean?
Some travel nurses that took those high paying contracts opted to claim “exempt” on their W-4 forms. Meaning, they are claiming they are exempt from paying taxes. Nurses opt to do this in order to take home all of their cash on payday, and pay taxes later. Per the IRS:
“To qualify for this exempt status, the employee must have had no tax liability for the previous year and must expect to have no tax liability for the current year. A Form W-4 claiming exemption from withholding is valid for only the calendar year in which it’s furnished to the employer.”
These nurses need to be prepared to face a big pay out to the IRS this tax season. Additionally, they could be hit with an underpayment penalty if they claimed “exempt” throughout the year.
The information contained herein is general in nature and based on authorities that are subject to change. I am not a tax expert and can guarantee neither the accuracy nor completeness of any information and I am not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. I assume no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations.