We sat down with Joseph Smith, the founder of TravelTax, to discuss the ins and outs of travel nurse taxes. He discussed tax challenges you may face, best practices, and ways to maximize your earnings.
How did you get started as a specialist in travel nurse taxes?
I was a travel respiratory therapist with a Bachelor’s in accounting. I started working for a healthcare staffing agency, and my wife and I started traveling together. Wherever I went, my coworkers would ask me to do their tax returns. I was already in the industry, so I knew the traveler’s life and their unique tax needs.
That hobby morphed into the practice we took national about 15 years ago. The business has grown so that we have three focuses: tax prep for mobile professionals, compliance consulting for agencies, and education programs for recruiters and travelers.
What challenges do travel nurses face with their taxes?
I think they fall into three main categories:
First, the most difficult area is understanding the concept of a tax home. It’s tricky to understand and can be difficult to maintain.
The second biggest challenge is understanding their contracts. How the taxable and nontaxable income are presented in agency contracts often leads to a lot of confusion. So, when it’s time to look at the tax side of things, that confusion impacts their total understanding of their taxes.
And third, it’s difficult for travel nurses to file multi-state tax returns. They must file in every state they’ve worked, plus the state their permanent home is in. There’s a whole lot to understand about taxes and the rules and regulations differ between states.
How would you suggest travel nurses tackle these challenges?
To understand the tax home, I like to explain it in the simplest way possible: A tax residence and a permanent residence are two separate things. A permanent residence is where a travel nurses legal ties are. The tax residence is an economic home base. So to find a travel nurse’s tax home, I ask:
Where is it that you make the majority of your income on a year-to-year basis?
If I find that place, then it’s straightforward. I’m done. If I don’t find that place, the tax home can be where a travel nurse’s main dwelling is, if they have substantial expenses at their dwelling that are duplicated when they are on the road.
If they don’t have a place where they make the majority of their income or a place where they have significant duplicate expenses, then they do not have a qualifying tax home.
Without a qualifying tax home, all of a travel nurse’s income is taxable.
To help travel nurses understand their contract, I like to give them a clearer picture of how much they will be bringing in per contract, overall. So, first, there are their wages, which are taxable. Then there are their lodging and travel reimbursements, which are tax-free. Just like a trucker takes a per diem for the days when he is on the road. I want travel nurses to be able to compare taxed and untaxed income easily.
So, the formula I use is:
[Taxable wage] x [# of hours worked in entire contract]
[Nontaxable wages in an hourly equivalent] x 1.4 [because it is more valuable than taxed income] x [# of hours worked in entire contract]
That makes it easy to understand the value of a single contract and to compare multiple contracts to one another.
For multistate tax returns, I recommend travel nurses don’t go it alone. If they do, it can be quite the journey. Most of the automatic tax return generators don’t allow for the complexity of a travel nurse’s tax situation in a multistate environment.
Even local CPAs who don’t focus on travelers often have trouble with it because they usually focus on their own state and border states
If you had a list of actionable items for travel nurses that would make taxes much easier for them, what would they be?
- Keep a copy of all your contracts. This is non-negotiable.
- Keep all your documents with you. When you’re on the road, it can sometimes be more difficult to maintain your documents.
- Don’t wait til the last minute to file. If you get close to the filing deadline, file an extension. There’s no harm in filing an extension.
Can you talk a little about the 50-mile radius myth?
There’s no such rule. It comes from some other parts of the tax code, such as those related to moving expenses. Moving expenses are allowed if your move is 50 miles + your old commute closer to a new job. But it has nothing to do with where travel nurses take their jobs. The agencies need to have reasonable belief that you will incur travel and lodging expenses at the assignment location.
Do you have any financial advice for travel nurses?
Think like a trucker. The way to make money in the industry is to live cheaply. Travel nurses who have established homes in low-cost areas do far better than, say, a travel nurse whose tax home is in San Francisco or New York. You don’t find many travelers in San Francisco. Travel nurses in high-cost areas should consider moving.
Get a high-demand specialty. You’re going to be able to work lots and lots of hours at a higher wage. Also, with the shortages out there, crisis shifts can really boost your salary, no matter what your specialty. Most travelers I talk to recommend being flexible and having three different specialties so you can market yourself.
Also, don’t look at the money first. Look at the experience. Travel nursing reshaped the way I look at the world and at life, for the better. Take the assignments that push you out of your comfort zone and bring you to places you’ve never been. You’ll really reap a lot of benefits.
Looking for more on travel nursing and taxes? Check out our blog on how it all works.