If you have nurse clients in your PA accounting practice who are considering becoming or are already traveling nurses, you’ll want to make sure they are clear on the unique tax implications of this line of work. For some nurses, it can be the right choice, but for others, they may want to make a switch.
Paying Travel Nurses
Travel nurses are usually hired through a travel nurse agency that sends nurses where they are needed, usually far from their home and even out of state. These nurses (as well as doctors and therapists) receive base pay with additional stipends for travel, housing, meals, and other work-related expenses.
While the base pay is often less than a nurse employed at a hospital may get, the stipends are often significant, and these stipends can be non-taxable, which is a great draw for many nurses. However, there is a trick to make sure they are non-taxable, and as a tax advisor, your clients will need your help.
How and when payments are non-taxable
In order for the nurses’ stipends to be non-taxable, they have to prove that they are living away from their tax home. Many people think that working 50 miles away is the IRS standard, but that is not necessarily so. Some agencies may have a rule for what they consider away from home, but there is no IRS ruling on this because there are so many different types of jobs and types of travel.
The point is that travel nurses must be able to demonstrate that they are living away from home, using receipts and a log of expenses. This counts for expenses at both the tax home and the work location.
A tax home is defined by two of the following:
- An area of regular employment
- A permanent residence in that area for which the taxpayer is financially responsible for the upkeep while away
- A residence to which one returns for at least 30 days every year
Traveling nurses do not qualify for point 1, so they must fulfill points 2 and 3 and be able to prove it. Therefore, they should keep records of paying bills for their residence, including paying a house sitter or someone who checks in on the place, mows the lawn, etc. Returning to the residence between gigs and using a credit card or having some other record of return is helpful to prove the taxpayer went home. Traveling nurses should maintain their driver’s licenses and voter registrations in their home state, as well.
If they can prove they are keeping up a home while away, their stipends will be tax-free. However, they will also want to keep track of all their travel expenses, such as:
- Mileage, flights, taxi, or other travel services
- Rent or lodging costs
- Food expenses (all receipts don’t need to be kept)
- Special training or certifications
- Uniform and other work-related expenses
These expenses, of course, are covered by the stipends, so keeping a log will help your clients determine how much net money they are making from the travel stipends.
Nurses will have to file taxes in each state in which they work, as well as in their home state. This can get confusing, especially when a nurse works in multiple states in the same year. Tax programs available for non-accountants usually cannot handle multiple state taxes, which is a reason why they will be better served by a tax professional. However, you will have to be familiar with those states’ taxes in order to advise your clients properly in completing them, if you are not licensed in one of those states.
When non-taxable isn’t necessarily a good thing
When your traveling nurse clients keep track of travel expenses, they may discover that even untaxed, they are not making enough money to justify the arrangement. That will be a personal decision that they would have to make. But there are other things to consider.
Untaxed money is also not recognized as income. This means it will not be counted toward Social Security and thus the Social Security payout at the time of retirement will be lower. A young nurse may not care about that, but an older nurse may want to keep that in mind.
A lower income will also affect the ability to get a loan or a mortgage and lower the dollar amount a person may qualify for.
Given these considerations, talk to your nurse clients about future plans, such as buying a home in the next 5-10 years or retiring in the next 10-15 years. In either case, nurses may either decide to declare no tax home and report both base pay and stipends on their taxes, or they may want to take a job in their tax home area.
Traveling nurses will need your help. Your expertise can be just what they need to help them maximize their income while providing life-giving services to others.