Tax Considerations for Travel Nurses – Everything You Need to Know About Stipends and Per Diems

In recent years, the demand for traveling nurses has surged, with these healthcare professionals playing a crucial role in filling staffing gaps across the nation. It is important to understand the unique tax implications that come with this career choice. This article aims to provide a comprehensive overview of everything you need to know about tax considerations for traveling nurses.

Tax Home and Travel Assignments

One of the key concepts for traveling nurses is “permanent home” vs. “tax home.” Your tax home is generally considered to be your main place of business or employment, which might not necessarily be your permanent residence. To qualify for certain tax deductions and benefits, you must maintain a temporary tax home, even if you have a primary home outside of the state where you normally work in.

Stipends and Per Diems

• Stipends: Stipends are typically provided to cover housing and meal expenses while on assignment. Stipends are generally considered taxable income, but they may not be subject to federal income tax withholding if they meet certain criteria. To qualify for tax-free treatment, the stipends should be a reasonable amount and the nurse must maintain a tax home (their main place of employment) in a different location outside of their primary residency state.
• Per Diem Rates: Per diem rates are daily allowances provided to cover meals, lodging, and work supplies. The IRS provides standard per diem rates for different locations. These rates can be used by employers to reimburse employees without requiring them to provide receipts for actual expenses. Per diem payments are often treated as taxable income unless the employer follows accountable plan rules, which require proper substantiation of expenses.

Many traveling nurses receive per diems or stipends as a part of their compensation. The good news is that, under certain conditions, these reimbursements might be tax-free. To qualify, you typically need to meet the following conditions:

• Maintaining a Tax Home: To qualify for tax-free treatment of stipends, you must maintain a temporary tax home in a different area outside of your residency state. Your tax home is generally considered the city or area where your temporary assignment is located whereas your permanent residency state is where your primary residence is located or where you would return after the temporary assignment.
• Duplicating Expenses: You must be incurring duplicate expenses – one set of expenses at your permanent home state and another set at your temporary work location. The stipends are meant to cover the expenses incurred while away from your permanent home.
• Reasonable Amount: Stipends must be a reasonable amount based on the anticipated expenses. Excess stipends that are not used for actual expenses could be considered taxable income.
• Length of assignment: Generally speaking, the period of temporary assignment cannot be more than 12 months in 24 months. If you are on a temporary assignment in a state for more than 12 months, you will likely establish tax residency in that state which would disqualify tax exemption on stipends.
• Accountable Plan: Your employer must have an accountable plan in place for per diem reimbursements. This means that you need to substantiate your expenses by providing receipts or other documentation to show that the payments were used for allowable expenses like lodging, meals, and incidental expenses.
• Standard Rates: If your employer reimburses you with per diem payments that are equal to or less than the IRS standard per diem rates for your assignment location, these payments are generally considered non-taxable.

Travel Expenses Deductions

As a traveling nurse, you might be eligible to deduct a range of travel-related expenses, such as transportation, lodging, meals (when not reimbursed), and even laundry, provided that you are paid via a 1099 as opposed to a W-2. These deductions are subject to IRS regulations, so it’s important to maintain accurate records and receipts to support your claims.

State Tax Considerations

Traveling nurses often work in different states, which can complicate state income tax filings. States have varying rules for taxing non-resident workers, and you may need to file income tax returns in multiple states. However, many states have reciprocity agreements that can simplify the process.

Double Taxation

In the case where you often work in different states, double taxation is something that you should watch out for. In general, the same income should not be double-taxed as long as it is appropriately reported on your state tax returns. For example, mechanisms such as other state credit can help you avoid such double taxation. If you are being taxed by more than one state on the same income, typically you can claim a credit towards one state for the tax paid to the other.

Contact Us Today

At Dimov Tax, we understand that each travel nurse’s journey is unique. We provide tailored advice to our clients based on their specific circumstances. Our team of experienced professionals who are fluent in travel nurse tax matters is here to provide you with the insights and assistance you need. Feel free to reach out to us below for services such as consultation, multi-state tax filing, strategic tax projection or tax planning.