As Tax Season is upon us, our partners at The Gypsy Nurse prepared for you answers to the TOP 10 Tax Questions of Travel Nurses.
The goal of a good tax preparer isn’t simply to prepare a historical document – which is the real substance of a tax return. It is their job to help the client plan for the future and find ways to reduce their tax burden going forward. With that in mind, a few of the most frequently asked questions we as tax preparation professionals we now receive actually have dual answers!
Top 10 Tax Questions of Travel Nurses
What is a tax home?
This is the most common Tax Questions of Travel Nurses we receive all year. Not just at tax time. It is also the most important since the determination of whether per diems, stipends, allowances or subsidies are taxable. I could spend a long time on this, but here is the 3-sentence definition: 1) A tax home is your main area (not state) of work where you have significant, recurring and annual income. 2) If you do NOT have a main area of income, then your tax home can be where you maintain your dwelling / abode, have significant expenses keeping this home which are duplicated when temporarily away from home on assignment. 3) If you have neither #1 or #2, you are “itinerant” and ALL the per diems etc. including the value of provided housing are taxable. This has NOT changed with tax reform.
Can I rent from my parents and make that my tax home?
Yes, BUT the arrangement needs to look, smell and taste like you are renting from someone who is not your relative. This means fair market rent OR splitting the total annual costs to keep the home like roommates would in an apartment. Your parents must also report the income on their tax return.
Where do I find fair market rental rates in my area?
Its amazing that in the age of the internet where information is so easily accessible that we get this question. In the old days, you would go to the classifieds of the newspaper. Those are still there, only its easier as newspapers are now online. There are the other sites like Craigslist etc. Get a few of those amounts based on similar accommodations and remember you are renting MORE than a room. You are also renting kitchen and bath facilities. Do not pay relatives in cash. Pay through a third party which includes checks, PayPal etc. If it is not documented, it never happened.
What state do I file in?
You file in your home state AND all the work states. It does not matter that you did not work at home. If you have legal ties to a state, you must file there. Not filing in your home state or a state you work in can jeopardize a professional practice license.
How do state taxes work?
Your home state taxes ALL income regardless of whether you worked there. The work state also taxes the income earned in their borders. Your home state will credit you for taxes paid to the work states, but if home state has a higher tax, you must make up the difference.
What are Per Diems?
Per diems are the MAXIMUM that an employer can give you for lodging and meals without receipts so long as they have done their due diligence in screening your tax home status. The per diem rates are found on the GSA.GOV website. They are not the minimum, the standard, nor are they a government subsidy to the agency. Stipends and per diems have NOT been changed by tax reform.
What kind of records should I keep?
For 2018 and beyond, you will need to justify any amounts you received tax free. Travel pay should be backed up with mileage logs, lodging allowances with proof of lodging expenses, and of course, keep your contracts. Don’t be tempted to ignore this just because nothing is deductible as you will see shortly. A way to mitigate the loss of this deduction is to work with agencies that pay these expenses.
How long should I keep my records?
7 years. In our industry, the tax-free part if ruled to be non-qualifying, can double the “Statute of Limitations” for audits. What this means is that it can extend the time limits on audits.
Can I get audited for a low taxable wages?
The answer is yes, especially if you have a large mortgage payment (the IRS knows the interest you paid) in relation to your taxable income. More importantly, you should consider the impact of your compensation on loan qualifications, Social Security, Disability and workers compensation. Want to get your blood boiling? There are ex-spouses owing child support that are running to low wage agencies to get around their fair share. There is no $20 per hour minimum. This is variable based upon geographic location. There is no hard and fast minimum for a traveler, but, if it’s under $18, beware.
What are the two most significant changes under tax reform?
First, you no longer can deduct employee business expenses. That means that 2000-mile drive to the new assignment and back with a capped $300 travel pay each way is no longer deductible. Going to a seminar? Not deductible any more. This will hurt a number of travelers that work for agencies that provide limited or no reimbursements on a tax-free basis.
Second, most of the states will begin tinkering with their tax returns. Most state tax forms feed from the IRS forms but those have changed significantly.
Gypsy nurses, If you read this far, congratulations! There are plenty more travel nurse tax questions we could cover that did not make it to the top ten.