Travel Nurse Work: Know the Tax Implications!

Travel Nurse Work: Know the Tax Implications!

Travel nurse positions have become more popular than ever. Hospitals are turning to them at record rates to fill personnel shortages and meet patient demand. And nurses are jumping at the chance to regularly travel the world at little to no cost — not to mention increasingly lucrative salaries.

Most traveling nurses register with an agency, which then places nurses with hospitals who need them. These agencies generally provide a base salary along with stipends for food, housing and possibly other work-related costs.

As a travel nurse, you generally get to choose which assignments you take and the areas in which you pursue work. Assignments generally last anywhere from several weeks to several months, giving you regular variety in work environment, responsibilities and places to live.

As appealing as traveling nurse jobs are, however, make sure you know the tax implications if you plan on taking one. Without proper planning and documentation, you could be looking at a big tax headache.

To contract or not to contract?

The first thing to know is how you’ll be classified. If you’re an employee of the agency, you’ll receive a Form W-2 for wages paid. However, more agencies are deeming travel nurses as contract positions and therefore issuing Form 1099s to document payments as an independent contractor.

If you fall into this latter category, you are essentially running your own travel nurse business. You’ll need to make quarterly estimated payments on your business taxable income, including income, Social Security and Medicare taxes. While you bear the brunt of the work in this regard, however, there are some distinct tax advantages.

First, you can select a business structure (such as a corporation or LLC). If you decide to operate as a C corporation, this means the business income is taxed at the entity level and is therefore subject to the federal tax rate and any applicable state corporate tax rate. Currently the federal corporate tax rate is 21% — significantly lower than most individual tax brackets. But there is also generally a state income tax rate and an additional 20% tax rate on the dividend paid from the C corporation to the owner.

An LLC, however, can be a disregarded entity if there is only one member (owner) and can be treated as a sole proprietorship. In this arrangement, your earnings are considered part of your individual tax return. An election can be made for the LLC to operate as a C corporation or an S corporation pass-through entity. We generally recommend an S corporation to avoid the possibility of triple taxation that can apply to the C corporation option. There is also the potential for Social Security and Medicare tax savings with an S corporation.

Additionally, as an independent contractor you can deduct business expenses from your business income on your income tax return. These can include housing, meals, mobile phone, internet, computer, mileage and other costs related to your work. Note, however, that there are restrictions for travel nurses when it comes to some of these expense categories. Please note that if you receive a Form W-2 as an employee, you’re not able to offset your income with travel-related expenses. The Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed employee expense deductions. A CPA well versed in the business side of healthcare can help you decide what to deduct.

Whether you set up a business entity for your earnings as a travel nurse depends on how much you make. (You may also need to establish a reasonable salary for an S corporation or C corporation.) While there are obvious tax advantages, you’ll have some extra work to do on the accounting and tax side as an independent contractor. If you have a significant income, the effort is generally worth the benefits.

How do you handle additional compensation?

You’ll also likely receive a stipend or per diem to cover living expenses like food and rent (or you might get reimbursed for them). This extra compensation can add tens of thousands of dollars to your annual income, yet they’re not taxed as such if based on IRS approved amounts. You will need to determine whether these amounts are included on Form W-2 or Form 1099.

It sounds like a great arrangement for a travel nurse. And while it is, here’s where things can get tricky. Stipends and the like are provided on the assumption that you’re traveling from home to perform your work. Therefore, they can only be excluded from taxable income if you can establish a tax home. The IRS defines a tax home as “the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home.”

There are two ways of establishing a tax home:

1. Prove your primary residence is also the main area in which you earn income. This likely won’t apply to you as a travel nurse.
2. Visit your primary residence at least once a year and keep documentation that you’re maintaining that home (via expenses or other efforts).

If you’re not able to fill either of the requirements above, stipends, per diems and reimbursements are considered taxable income. So make every effort to follow the rules. Document payments you make for mortgage/rent and utility bills at your primary residence. Use your permanent home address for your driver’s license, car registration and voter registration. To prove regular visitation to your tax home, use your credit cards to make purchases in the area whenever you’re there.

Know the state of your taxes… literally.

You’ll file a federal return as well as a state return if your home state levies an income tax. However, you also have to file a non-resident tax return for any other state(s) in which you work that year (again, provided that state has its own income tax). Each state has its own laws on how income is taxed and how/whether to file a tax return. A CPA with state and local tax knowledge will keep track of these varying (and sometimes contradicting) laws to make sure you’re obeying them.

Keep thorough records!

As with anyone else, there’s always a chance your tax return will be chosen by the IRS for an audit. If this happens, your best defense is preparation. So keep complete and accurate records on anything linked to your return, such as:

• A copy of the contract for each assignment you take
• Receipts for travel, food and other expenses if you will be deducting them
• A mileage log for travel (both daily and when you move from one assignment to the next)
• All documentation relating to your tax home (as mentioned earlier)

Travel nurse positions are growing in number every day! With careful tax planning and record keeping — not to mention an assist from your healthcare CPA — it’s a terrific opportunity for professional fulfillment, adventure, variety and financial comfort.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.