What Travel Nurses Need to Know About Tax Homes
Travel nurses who have taken assignments regularly in the past know that when tax season rolls around, things can get complicated. Working in multiple states and accruing travel expenses makes for complexities when filling out returns. Adding a “tax home” to the mix sounds like it would complicate things even further, but they are actually quite necessary. For a travel nurse to be paid a per diem rate or housing stipends, he or she must have a tax home. Additionally, many travel nurses find that a tax home helps to reduce their tax burden each year.
What is a tax home?
The IRS describes a tax home as “your regular place of business or post of duty, regardless of where you maintain your family home.” This includes the entire city or general area where your work is located. For most people, this would be the city where they work their full-time job. It is not your permanent residence.
However, as those in the travel nursing field know, short-term assignments mean that there is no “regular” place of business. Most travel nurses bounce around from one place to another, often stopping back home in between.
In this case, the IRS makes an exception. It says, “If you do not have a regular or main place of business because of the nature of your work, your tax home may be the place where you regularly live.”
Three factors are at play when it comes to this exception to the tax home rule:
- You perform part of your business in the area where you live and live at your permanent home while conducting that business;
- You have living expenses at your main home that you duplicate by working away from home (such as paying rent for your permanent apartment and for your apartment while on assignment); and
- You have historical ties to the area of your main home, have family members living at that home or stay in the permanent home frequently.
Satisfying two of these three factors — as most travel nurses do — may make your place of residence your legal tax home.
Why tax homes are so important
While working as a travel nurse, you’ll receive a compensation package (typically called a per diem and/or a stipend) that reimburses expenses like food and housing expenses. These reimbursements do not count as taxable income as long as they are provided while you’re working outside of your tax home. If you’re working within your tax home, you are not eligible for these tax-free reimbursements.
Establishing your tax home ensures you are able to legally take advantage of those reimbursements that add to your overall compensation package.
Some agencies won’t even sign you unless you have a tax home to simplify the taxation and reimbursement processes. So, if you want to get the most out of your agency’s tax-free reimbursements for housing and other travel-related expenses, it’s a good idea to clearly establish (and maintain) a tax home.
How to create a tax home
To create a tax home as a travel nurse, ensure you’re eligible to claim your permanent residence as your tax home and then prove you’re maintaining it. Document all mortgage or rent payments to prove duplicated expenses and maintain meaningful connections to the home, such as keeping the address on your driver’s license and spending time at home between assignments.
Working with a tax professional is usually recommended, since it ensures you’re in legal compliance when it comes to accepting reimbursements from your agency. Establishing your tax home correctly will allow you to make the most of the compensation you’re eligible for, while reducing headaches during tax season.