Money and Taxes

Understanding 2021 Travel Nursing Tax Rules

Deciphering the travel nursing pay structure and tax rules 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. Plus, 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. 

**Tax Disclaimer: 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.

rachel-nurseflygmail-com
Rachel Norton BSN, RN

Rachel Norton has been a critical care nurse since 2007. She grew up in the northeast but enjoys every corner of the country. Her passions are people and travel, so travel nursing allows Rachel to both meet amazing people and satisfy her wanderlust - and she loves inspiring other nurses to do the same.

Comments (29)

I live 50 mile radius from my travel assignment so I qualified to be paid as travel nurse with housing stipend, food and etc. I signed the “tax exempt” does it mean I owe IRS at the end of the year?

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Hello Zoey and thanks for reaching out. You shouldn’t owe taxes on any untaxed stipends and per diems for meals and other incidentals. However, you do still pay income taxes on your actual salary. Be sure to speak to a tax professional to ensure you understand your tax liability and avoid any surprises at the end of the year.

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Rachel – have a question – working on a travel assignment in Calif for almost a year – my tax home is in Texas. Would Calif be my tax home if I continue working there over a year? How would I continue to work in Calif and claim Texas as my tax home? Do I need to take a break of 2 -4 weeks and then continue to work in California with a completely different agency. thanks

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Hello Linda, and thanks for reaching out. Changing agencies shouldn’t make a difference. It’s all about time and location. The generally accepted rule of thumb is never to work more than 12 months in any rolling 24-month period in the same metropolitan area. Most recruiters will tell you that you can stay as long as you want in the same state as long as you move to different areas of the state. However, it can get tricky if you work in two cities that aren’t in the same metro area but are close enough to allow a reasonable commute. You must also take care not to inadvertently become a resident of the state where you’re working, and it becomes your tax home. You always want to ensure you’re spending enough time in your tax home (Texas), and you can provide you’re duplicating expenses in California and Texas. Unfortunately, the IRS doesn’t provide clearly defined rules when discussing “area” or the time allowed in a given area, leaving it somewhat open to interpretation. Because we’re not tax experts, Vivian always encourages travelers to speak with a tax professional familiar with current travel nursing rules to ensure they stay in step with IRS tax rules.

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Great article, thank you. I have one question. If I take a travel assignment in, let’s say San Diego CA, and work there for 9 months, can I then take an assignment in Sacremento CA for 9 months without having to pay back taxes on my per dium? I guess I’m wondering if the 12 months out of 24 months means one area or one state. Several nurses have told me that I will not be able to be in one state more than 12 months out of 24 months.
Thanks!

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Thanks Lisa, we’re glad you liked it! The generally accepted rule of thumb is never to work more than 12 months in any rolling 24-month period in the same metropolitan area. Most recruiters will tell you that you can stay as long as you want in the same state, as long as you move to different areas of the state. However, it can get tricky if you work in two cities within the same state that aren’t in the same metro area but are close enough together to allow a reasonable commute. Also, you must take care not to inadvertently become a resident of the state you’re working in and lose your permanent tax home. Unfortunately, the IRS doesn’t provide clearly defined rules when discussing “area” or the time allowed in a given area, leaving it somewhat open to interpretation. Because we’re not tax experts, Vivian always encourages travelers to speak with a tax professional familiar with current travel nursing rules to ensure they stay in step with IRS tax rules.

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Hi this article says fair market value should be paid for renting out a room or so in family or friends home for duplicating purposes if not having a lease of their own… I spoke with my tax person & I was told that shared expenses had a different story. Because it’s not technically “rent”… I was told if we were to send money for utilities and room or if the total pay for the utilities and mortgage is divided equally amongst those living in the same home, that – that is fine too so it may not always equal fair market value.

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Hello JC, and thank you for sharing information provided by your tax expert! Vivian always recommends deferring to what your tax expert tells you, because they’re the experts. The fair market value wording is used to ensure new travelers understand that they can’t pay a very low amount, say $100 per month when a shared residence in their area typically goes for say $800 (these are just made up numbers) and claim they’re duplicating expenses. If you’re splitting up the cost, you should be paying your portion of the fair market value. IRS rules can be very confusing because they’re not black and white for travel nurses/HCPs, so talking to tax experts familiar with travel nursing rules is always best.

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Hello, thank you for a great article and opportunity to ask questions! I have my permanent tax home in hawaii and would take travel assignments in Texas this year. I want to relocate to Texas this year, will that make me get taxed back on all my previous travel to Texas even though I was living in Hawaii at the time?

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We’re glad you liked the article, Rebecca. If you’re concerned about being taxed on tax-free stipends you received while living in Hawaii and working in Texas, you shouldn’t be required to pay taxes on those stipends as long as you have proof that Hawaii was your permanent tax home while you were taking travel assignments in Texas. No matter the situation, always be sure you can prove that you were duplicating expenses in both locations during a specific time period. We also suggest reaching out to a tax expert familiar with travel nursing to ensure you have all the appropropriate documentation and are following all current federal and state tax rules to cover all your bases. Best of luck with your upcoming relocation!

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Hello!
If my parents RENT a property as their primary residence and do not OWN another home and I wanted to make the rented property my tax home… Would my rent or shared expenses (utilities) for this property be considered taxable income to my parents since they do not own the home? I would imagine not, and it would only be considered shared expenses to my parents and considered income to the landlord, but I wanted to double check.
Thank you for your time!

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Thanks for reaching out! Tax laws regarding taxable income can be complicated and Vivian doesn’t employ a tax expert. Whether your parents would need to count your rent as taxable income could hinge on whether you’re included on the lease. Also, if you pay your rent to your parents who combine it with their money and pay the rent with one check on their own account, you may be technically renting from your parents and not the landlord. We advise you to speak to a tax professional in your area to ensure you’re truly paying rent to the landlord and not your parents to avoid confusion on the taxable income question.

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If my tax home has been in Northern NJ for the last few years, but I have been travel nursing across the country in different areas (for 1.5 years), but now am planning on moving to southern NJ(about 100 minutes away)… Do I have to wait to take a travel job in the NYC/Northern NJ area and get per diems? If not, how long will I have to wait until I can?

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Thanks for reaching out! There shouldn’t be a waiting period as long as you meet the permanent residence criteria in your new location. If you’re duplicating expenses per the IRS rules to receive tax-free stipends and you meet permanent residence criteria, you should be good to go. However, double-check with the travel agency and/or hiring facility to confirm when you qualify for tax-free stipends just to cover all your bases. Best of luck with your upcoming move!

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Hello I have a question. I had an apartment in Los Angeles and took a travel contract in Boston. The first 5 months of my travel contract, I paid my apartment lease in LA while also paying rent in Boston. I did not renew my LA apartment lease during the middle of my 2nd contract in Boston and moved all my stuff to my parents house who lives in Orange County (considered same metropolitan area). If I share expenses and utilities with my parents on the house (pay each month part of mortgage and utilities) and change my drivers license and voters registration and forward all my mail there, as well as come home between contracts, is this enough to still qualify for the tax free stipends and be viewed okay by the IRS if audited ? I plan to work as a travel nurse in Boston no more than 9 months total as a travel nurse. Im trying to maintain California as my tax home

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Thanks for reaching out, Lisa! Although Vivian doesn’t employ a tax expert, the general travel nursing rule is 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. If you claim a rented room 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 are audited and claim a permanent tax home, you must prove you’re duplicating expenses. It’s wise to ask in advance what you need as proof of a tax home so you can prepare any necessary paperwork. We suggest reaching out to a travel nurse tax expert for further advice.

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Anyone know of this new IRS rule of having to break a contract for 35 days after being there 1 year?

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Thanks for reaching out, Terry! Although Vivian doesn’t employ a tax expert, the general travel nursing rule has always been that you can’t spend more than 12 months in a single metro area within any rolling 24-month period to meet the tax exemption eligibility requirements. We suggest reaching out to a travel nurse tax expert for further advice.

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How do I prove I paid a family member for housing come tax time?

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Through apps like zelle or veno so you have proof! Never through cash. Then you can save these receipts and prove to IRS you are paying rent

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So the company I contract with is in California, the location of my assignment is Memphis, TN. Do I pay state income tax to TN? because my W2 block 15 (state) has AL, which is my home state…?

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If I take the fully taxed rate for pay, can I then deduct costs for hotels and meals and travel?

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I want to know if I am a travel nurse my home state is WI and I am doing an assignment in CA which state do I pay for taxes on my paycheck each week

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Hi Michelle- sorry for the delayed response. You pay taxes where you work. So any work in WI- you will pay taxes on that income. For your assignment in California, you will pay CA state taxes and file a state tax return for CA during tax season.

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What is you work in a tax free state? I worked Florida and now owe state taxes in SC for all income made in Florida.

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I’ve been working in Texas, they do not have a state tax but I notice that I’m paying Alabama state taxes even though I’m not working there.
Alabama is my home state.

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Actually you pay taxes in your home state AND in the state you work, if that state has a state income tax.

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You will pay taxes in bothe states.
If your eligible at the end of the year and have a valid tax home, you will get the CA taxes refunded when you file.

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Is it against irs guidelines for a company to pay your housing stipend while you are on vacation?

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