Travel nursing contracts often come with high salaries and attractive bonuses. Before you hit the road, it’s important to consider where you’ll live and work. Your travel nurse residency status, both during and between contracts, can have significant implications when it’s time to file your taxes.
Travel Nurse Compensation and Residency
Travel nurse compensation packages can be complicated. In addition to a base salary, they often include bonuses and stipends for housing, meals and incidental expenditures.
How does that relate to your residency? The stipends are tax-free if your travel nursing contracts are outside your tax home. Tax-free income potentially reduces your taxable income significantly, which means you could fall into a lower tax bracket and/or pay less in taxes.
What Is a Travel Nurse Tax Home?
According to the Internal Revenue Service (IRS), your tax home is usually the city or general area where you do most of your work. Most taxpayers primarily use tax homes to determine what activities count as business travel for deduction purposes. However, if you’re a travel nurse, your tax home can determine whether you’re eligible for tax-free stipends.
Your tax home doesn’t necessarily have anything to do with your house. Instead, it’s tied to the location of your job. For travel nurses, things are a bit different because you may not have a regular place of business. To account for this scenario, the IRS offers another way to determine a tax home: your “abode in a real and substantial sense.”
In other words, if you’re a travel nurse with a permanent residence, you may be able to declare it as your tax home.
Travel Nurse Residency Rules for Tax Homes
If you’re considering using your residence as a travel nursing tax home, the IRS uses three factors to determine whether it qualifies. Agents check to see if you:
- Have duplicate expenses: You must pay housing expenses at your tax home and the location of your travel nursing contract. These expenses must be reasonable based on fair market value. In other words, you can’t claim your parents’ house as a tax home if you aren’t paying a fair amount for rent and utilities based on the local real estate market.
- Avoid abandoning your tax home: To meet this requirement, you must prove that your home is your legitimate residence. Do this by returning to this residence between contracts or lodging family members at your house.
- Perform part of your work near your tax home: Take at least one contract near your home and live there for the duration.
When you meet all three criteria, you can usually declare your permanent residence as a tax home without incident. If you meet only one criterion, the IRS considers you an itinerant worker.
If you’re like many travel nurses, you’ll fulfill the first two criteria but not the third. Usually, this happens when you only take contracts away from home. That doesn’t mean your permanent residence won’t qualify as a tax home. However, the IRS may scrutinize the first two qualifications more closely.
To make your case, it’s a good idea to document expenses and spend at least 30 days per year at your house. You should also reinforce your ties to the home by using it as your permanent address for your driver’s license, vehicle registration, bank accounts and voter registration.
Determining Your Travel Nurse Tax Home
When you’re not sure how to identify your tax home, use these three common residency/tax home scenarios:
- You have a permanent home, but most of your work consists of travel nursing contracts in other locations. If you meet the IRS qualifications, you can declare your permanent residence as your tax home. Otherwise, your permanent home will be wherever you worked most during the year.
- You have a permanent home and a local job, but you take the occasional travel nursing contract away from home. As long as your local job makes up the bulk of your working hours, your permanent home is your tax home.
- You don’t have a permanent home. The IRS labels you as an itinerant worker, and your tax home is where you spend the most time working during the year.
How Do You Declare a Tax Home?
You must complete and sign a declaration of your permanent tax home with your travel nursing agency before you start a contract. The process usually involves a single form. Signing the declaration enables the agency to structure your compensation package to include tax-free stipends.
Residency and Tax-Free Travel Nursing Stipends
You only qualify for tax-free stipends when your travel nursing contracts happen outside your tax home. To meet this qualification, the contract must:
- Require additional housing: IRS rules state that your travel nursing contracts must be far enough from the “general area of your tax home” to require separate housing arrangements.
- Be a temporary assignment: The IRS defines temporary as assignments that are more than one day but not more than 52 weeks.
How long can a travel nurse stay in one location?
If you want to continue receiving tax-free stipends, travel nursing assignments can’t be longer than 12 months in a rolling 24-month period in the same location. Some nurses try to get around this rule by taking travel contracts in the same city but at different facilities. However, this rule applies to the metro area, not the facility. If you use this strategy, the IRS may consider the area your tax home, and you no longer qualify for tax-free stipends.
Do You Need to Keep Receipts When Working Away from Your Tax Home?
Since tax-free stipends aren’t deductions, you don’t technically need to keep receipts for the housing expenses they reimburse. However, saving receipts is a smart way to protect yourself.
In some cases, the IRS may audit the nursing agency if they suspect that it’s inflating stipends to reduce payroll taxes. That’s because tax-free stipends are usually limited based on local cost of living expenses. For example, if you take a contract in New York, you might get a higher housing stipend than you would in Omaha. If the IRS finds that the stipend is significantly higher than your actual expenses, you may need to pay income taxes on the excess amount. Receipts make it easier to prove your costs and minimize liability.
Accurate financial records can also help you prove that you’re incurring housing expenses at your tax home and the location of a nursing contract. You’re prepared to present your case if the IRS questions your tax-free stipends.
Do Travel Nurses Need a Permanent Residence?
Travel nurses don’t need a permanent residence. If you don’t have a permanent residence or a primary place of work that qualifies as a tax home, you’re an itinerant in the eyes of the IRS. That means your tax home will be wherever you spend the most time working. Since you don’t have a primary residence or duplicate housing expenses, you won’t qualify for tax-free stipends.
Travel nursing agencies may structure your pay differently when you’re an itinerant. Any reimbursement you receive for housing expenses gets taxed as income. Some agencies simply increase your base salary and eliminate stipends to simplify the filing process. Regardless, the increased taxable income will likely put you in a higher tax bracket, which means you might pay more in travel nursing taxes.
Advantages of Declaring a Tax Home
Travel nursing tax implications motivate many professionals to declare a tax home. Let’s look at two simplified scenarios:
- Scenario 1: You declare a tax home and take a travel nursing contract with a $30,000 base salary and $15,000 in tax-free stipends. Your taxable income creates an effective tax rate of 11.32%, which means you’d pay $3,396 in taxes before deductions and credits.
- Scenario 2: You’re an itinerant and take a travel nursing contract paying a $45,000 base salary. Since you don’t have a declared tax home, you don’t qualify for tax-free stipends. Your higher taxable income moves you to an effective tax rate of 12.26%, creating a tax liability of $5,517 before deductions and credits.
In both scenarios, your total income is $45,000. When you qualify for tax-free stipends, it reduces your taxable income and saves you $2,121 in taxes.
Travel Nurse Residency and State Taxes
As a travel nurse, your tax home applies only to your federal income taxes. States levy state income taxes separately. In most cases, you must pay state income taxes in every state you work in during the year. If your tax home is in Michigan, but you spend the year working a nursing contract in another state, you’ll probably pay income taxes in that state.
State tax rules can be complicated, so it’s essential to check the laws carefully to determine your filing requirements. Some states don’t have an income tax. Others have reciprocal tax agreements, which means residents of one state can work in a participating state without paying its income taxes.
If you’re planning to look for travel nursing jobs, your tax home and your temporary residences can greatly impact your tax bill at the end of the year. Before you accept a travel contract, talk to a tax professional to determine the best course of action.
Read our guide to Understanding Travel Nursing Tax Rules for the latest updates and changes to current tax laws.