May 18, 2019

50142 Views

Travel Nurse Taxes & The 50-Mile Rule.

Posted on May 18, 2019May 14, 2024 by Joseph Smith @ Travel Tax

A traveler will eventually encounter the “50-Mile Rule” during conversations with recruiters or fellow travelers.

The rule is often discussed as an accepted law of traveling and defended with evangelistic zeal on social networking sites. No matter how many times it is refuted, the rule emerges in another conversation like a marathon game of Whac-A-Mole[I].

Let’s start with the facts:

THERE IS NO SUCH THING AS A 50-MILE RULE!

Ahhh that feels better… Now that we have released our frustrations let’s explain the origins of this myth.

The 50 Mile Myth and the 50 Mile Reality

Myth: As the myth goes, if you live more than 50 miles away from the assignment, you are entitled to, eligible for, or guaranteed a special government subsidy for lodging that is completely free of taxes. What a deal! If it sounds too good to be true, it probably is.

Reality: Tax-free reimbursements for lodging are only allowed when one is traveling away from their tax home (not their permanent residence)[ii]. The distance traveled must require the employee to get rest and sleep at the assignment location to fulfill their duties at the facility. There is no mileage benchmark for this. It is a simple overnight stay test.

Apply some logic here: Why should one receive tax-free lodging allowances without incurring lodging expenses?

Agency Use of the ’50 mile Rule.’

Unfortunately, a lot of agencies have this 50-mile verbiage in their contracts, tax home statements, and marketing. Some recruiters are taught this as an IRS rule and insist that travelers use an alternate address on their tax home forms to qualify for the provisions. It’s no wonder that there are more than 20 agencies being audited, and for some of them, the 50-mile myth is part of the problem.

50-mile rules are good internal screening tools for the agency to test the validity of the information that a traveler provides. However, it is not the litmus test to determine eligibility for tax-free lodging allowances. Even if a traveler prefers to drive 80 miles each way to work and back each shift, they do not qualify for tax-free lodging allowances. Why? There are no lodging expenses to reimburse.

Some facilities that use travelers or per diem staff incorporate a 50-mile limit for the professionals that the agencies submit for positions or shifts.

This is an attempt to keep current employees from jumping ship and working with the agency for premium pay. Some facilities have a longer distance requirement of 75 or even 100 miles due to the geographical nuances of the area that they serve. This facility rule is often confused with the mythological 50-mile IRS rule by recruiters and travelers alike.

There are only two places where there is a 50-mile rule in the tax laws.

First, §162(h) of the Internal Revenue Code allows state legislators to receive a per diem when traveling more than 50 miles for legislative business. They are not required to incur lodging expenses for the payment.

Furthermore, the second 50-mile rule applies to moving expense deductions. A taxpayer can deduct moving expenses when they permanently move their residence 50 mile plus their old commute to be closer to a new permanent job. Moving expenses do not apply to a regular traveler. A traveler is never “moving” – they are temporarily working “away from home.”

We hope this clarifies the 50-mile rule for you. We realize that it may be another futile attempt at resisting assimilation by the industry Cybermen. Maybe this installment of Traveler Dr. Who will prevail for good[iii].

[i] Our apologies to those of you that are too young to remember this game J
[ii] A Permanent Residence and a Tax Residence are different- refer to previous articles for this discussion
[iii] Both the Borg in Star Trek and the Cybermen in Dr. Who warned their prey of assimilation

Would you like to learn more?

Check out the TOP 10 Questions for Travel Nurses on Taxes.

By Joseph Smith @ Travel Tax

February 16, 2019

106644 Views

10 Most Asked Tax Questions of Travel Nurses

Posted on February 16, 2019June 27, 2023 by Joseph Smith @ Travel Tax

This article is the third in a series of articles we’re calling “Truth in Travel Nursing.” Designed to provide reliable information to travel nurses, we hope these articles help clear up what we feel are some common misconceptions in the travel nursing profession today.

As Tax Season is upon us, we’ve 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, now receive actually have dual answers!

Top 10 Tax Questions of Travel Nurses:

What is a tax home?

This is the most common tax question 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 and have significant expenses keeping this home which are duplicated when temporarily away from home on assignment. 3) If you have neither #1 nor #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?

It’s 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 it’s easier as newspapers are now online. There are 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 your 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 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 worker’s 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 a variable based on 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 a 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 anymore. 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.

Are you new to Travel Nursing?

Start with our Travel Nursing Guide.

By Joseph Smith @ Travel Tax

October 21, 2015

9049 Views

What are per diems?

Posted on October 21, 2015January 26, 2023 by Joseph Smith @ Travel Tax

A lot of confusion surrounds the “per diem” payments that many travelers receive that covers lodging and meals.

These payments are usually paid on a tax free basis assuming that the traveler has a qualifying tax home. Per Diems are also called allowances, stipends, subsidies and reimbursements, but more specifically, are paid for lodging and meals – not transportation.

The per diem concept can be summed up with this illustration:Suppose you and 99 other people were sales reps for a medical manufacturing company. Your weekly activity consisted of traveling to potential buyers, spending nights in hotels and eating out. When you returned, you handed all of your receipts to a human resources staff member that processed reimbursement checks for you and the other 99 sales agents. What seems to be a simple process is now 99 times larger and if this occurs each week, your employer would commit a full time staff member to this task alone.

Enter the per diem.

Since the Federal government has a LOT of traveling employees a system was designed where the costs for lodging and meals was standardized for every locality in the world. The system allowed the employer to use these standard rates as the reimbursement amount for lodging and meals without the exchange of receipts, disregarding the actual expense of the employee. In effect, the employer pays the per diem rate and so long as the employee had a reasonable expense and the rest is theirs to keep regardless of the amount of the expense unless there was NO expense at all (like a trucker sleeping in their cab).

This is an important concept for another reason – this is how ones makes money as a traveler- by taking the per diem and finding cheaper lodging. The rest is theirs to keep and so long as they have a qualifying tax residence, the entire payment is free of tax or more accurately, “excluded from gross wages subject to tax”.

If you need additional information or assistance on tax or tax-free issues, please contact Joseph Smith at TravelTax.com

Note from Gypsy Nurse:

If you accept tax-free per diem, it’s imperative that you are following the IRS guidelines of ‘Duplication of Expenses’ and have a valid Tax Home. I’ve worked both as a per-diem employee as well as an itinerant (all taxed) employee and to be honest, I don’t see a ton of difference in the take-home amounts. The flexibility (for me) of not having to maintain a tax-home has been worth the small difference in take-home.

It’s also important to note that you will not likely receive the full Government GSA rate for any given location. It is however important that you do NOT receive over this government designated rate.

By Joseph Smith @ Travel Tax

June 15, 2015

6082 Views

Talking Taxes: ACA Tax Credits

Posted on June 15, 2015January 26, 2023 by Joseph Smith @ Travel Tax

In the last article we looked at the Health Insurance mandates and how the penalties apply when there are gaps in coverage which is a common problem for healthcare Travelers. In this article, we will look at the mechanics of the ACA tax credits that are available to certain taxpayers who use the exchanges.

The tax credits are designed to offset health insurance premiums of policies procured through the exchanges or through a private source in which the same exchange policies are purchased. The credit is prospectively granted based on anticipated income but retrospectively adjusted on the tax return for that year.

The Credit

Eligibility for the credit is based on income reported on the previous year’s tax return. When you file your 2014 tax return, an additional form will be used to calculate the amount of credit that you are eligible for to offset 2015 health insurance premiums due to exchange based policies. This formula then goes through two steps: 1) your income on the 2014 return must be below 400% of the Federal Poverty Line and 2) your insurance premiums must exceed 9.5% of your income. In essence, the ACA is a 9.5% tax on earnings per the landmark Supreme Court ruling.

The Payback

There is another calculation going on in the background. Since the credit for 2015 is based on the income reported on the 2014 tax return, the income you report on the 2015 tax return will be used to reconcile the credit that you received. If your income is higher in 2015 than the 2014 baseline year, you will pay back the excess credit in the form of an additional tax on your 2015 tax return. If your income is lower than the 2014 baseline year, you will receive an additional credit which will be applied to the 2015 tax return.

See Saw

This seesaw of credits and paybacks adds another layer of complexity to annual tax return when we one holds and exchange based health insurance policy. Some taxpayers will be required to pay back a significant amount of credits that they received in the previous year. To illustrate, assume a traveler has difficulty finding work in 2014 and is eligible for credit. In 2015, they work a full year. On the 2015 tax return, a portion of the credit (or all) will be charged as an additional tax. If the refund is not large enough to absorb this additional tax, the traveler will have an amount due on the return. As you can see, things might get pretty messy.

Would you like to learn more?

Check out the TOP 10 Questions for Travel Nurses on Taxes.

By Joseph Smith @ Travel Tax

January 20, 2015

9892 Views

ACA Tax Implications for Travelers

Posted on January 20, 2015January 26, 2023 by Joseph Smith @ Travel Tax

Guest Article provided by: Joseph Smith @ Traveltax.com

ACA (aka “Obamacare”) requires all individuals carry health insurance starting with the 2014 tax year. Here is some information on ACA tax implications for travel nurses:

Since travelers are highly susceptible to gaps in employment, they are more likely to be subject to the penalties assessed for the lack of coverage. Additionally, travelers who intend to use the health insurance exchanges and associated tax credits will have difficulty predicting their subsidy due to the income swings that occur with their various contracts.

ACA Tax Implications

The next series of articles will look at the ACA mandate and its impact on travelers by first focusing on how penalties for non-compliance are assessed. In the next installment, we will look at the mechanics of the tax credits that are available to those who procure health insurance from the exchanges.

Penalties

The penalty for not carrying qualified health insurance coverage starts in 2014 at 1% of income or $95, whichever is greater. In 2015, the penalty rises to $325 per person or 2% of income; and in 2016, $695 or 2.5% of income. The penalty applies for any month that an individual is not covered and is prorated if the individual fails to carry insurance less than 12 months of the year. Since travelers run the risk of losing employer based health insurance during the periods between assignments, they are subject to the penalty unless they procure another policy or continue the policy provided by the last employer through COBRA.

GAPS in Coverage

Under the ACA regulations, if an individual has coverage for one day in a month, they are credited as having coverage the entire month. This potentially allows a traveler to gap coverage for nearly two consecutive months so long as the coverage ends and starts in each month. Some health insurance providers follow a calendar month cycle, meaning that coverage continues until the last day of the month even if a traveler finishes an assignment in the first week of the month.

Exemption for Gaps in Coverage

Though the penalty applies for any month an individual does not have coverage, there is an exemption available for those whose coverage gap is less than three consecutive months. This exemption is only allowed once a calendar year so if the exemption is used in the early part of the year, it cannot be used again in the latter part. If there is a second gap in coverage during the calendar year, a separate “hardship exemption” can be requested. “Hardship” exemptions include a number of specific situations including a death of a family member or bankruptcy filings; however, most all of them require some form of documentation. Hardship exemptions are filed separately from the annual tax return unlike the regular exemptions.

Since the ACA regulations incorporate a one day = one month convention, a traveler could have almost 5 months of coverage gaps and still qualify for the exemption, so long as the coverage ended sometime during Month 1 and coverage with a new policy began in Month 5.

Coverage gaps that extend through one calendar year and into the next have a specific counting rule.

If a traveler does not carry coverage the last two months of the year, when they file their tax return for that year, they report a two month gap in coverage which would qualify for a regular exemption. The counting for the second year incorporates the previous year end gap.

EXAMPLE: If the traveler continues without coverage for the first two months of the second year, they will be considered to have a gap in coverage for 4 months in that year and be subject to the penalty. A peculiar situation can arise when a traveler gaps coverage in November, December and January. For the first year, there is a two month gap which is covered under the regular exemptions. For the second year, the gap is a three month gap, again, covered under the regular exemptions; however, since the regular exemption is used, a subsequent second gap in that calendar year requires a hardship exemption.

Filing Taxes

Since ACA compliance disclosure is incorporated in the annual tax return filing, it adds another layer of complexity to set of forms required with each return. Most taxpayers will receive Form 1095 that evidences health insurance coverage. An additional form currently being developed will be used to report the information on the 1095 series forms when the return is filed. Search and download forms HERE.

Would you like to learn more?

Check out the TOP 10 Questions for Travel Nurses on Taxes.

By Joseph Smith @ Travel Tax

May 22, 2014

8543 Views

Talking Travel Nurse Taxes- The State Tax Return

Posted on May 22, 2014January 26, 2023 by Joseph Smith @ Travel Tax

But I Didn’t Work There!!

…and similar comments about travel nurse taxes and state tax returns….

In previous articles, I have pointed out the difference between a permanent residence and a tax residence; and how this distinction is the main source of confusion among travelers, recruiters and staffing agencies who try to determine whether travel reimbursements can be excluded from taxable wages.

In this article, I want to focus on the permanent residence side of things and how it affects the filing of state tax returns. When travelers work in a states other than their permanent residence, a common mistake that tax preparers and travelers make is focusing too much where the income is earned vs. where the traveler is domiciled. “Domicile” and a permanent residence are closely related and for the purpose of this article, I will treat them synonymously. While they are slightly different concepts, travelers tend to have their permanent residence and domicile in the same place.

A person has domicile in the state where his legal ties are more closely aligned. A driver’s license, car registration, voter registration and resident professional licenses are significant connections to a state. These ties are often established long before a traveler begins their career and state tax agencies view these as significant proof of residency in a state. An individual files their “resident” tax return, not based on where they earn their income, but where their permanent residence/domically ties are strongest. There are three additional reasons that this applies

Travelers are working “away from home”. They are not moving, but temporarily “mobilizing” to an assignment location. The fact that they do not earn income in their home state has no bearing on whether they file in their home state or not. Further, when travelers receive tax free reimbursements for lodging and meals, they are usually attesting to the agency that they maintain a residence in their home state.
Almost every state has statues or regulations establishing a “presumption” that a taxpayer’s domicile will continue until the taxpayer BOTH severs all significant residential/domically ties AND establishes new domiciliary ties with their new state. It’s not enough to simply abandon a residence but establish a new one.
For nurses domiciled in a compact state, the filing of a resident tax return is universally expected for renewal or validity. Nursing boards and state tax agencies readily exchange information and some states treat tax delinquency as a basis for non-renewal of a license.

The take away:

Travelers report worldwide income to their home state as full year residents and receive credits for taxes paid to other states (unless a reciprocity rule applies). If the tax rate of the home state is higher than the work state, the difference in tax must be paid to the home state. The fact that one does not work at home does not change this.

Would you like to learn more?

Check out the TOP 10 Questions for Travel Nurses on Taxes.

A traveler will eventually encounter the “50-Mile Rule” during conversations with recruiters or fellow travelers.

Let’s start with the facts:

THERE IS NO SUCH THING AS A 50-MILE RULE!

The 50 Mile Myth and the 50 Mile Reality

Agency Use of the ’50 mile Rule.’

There are only two places where there is a 50-mile rule in the tax laws.

Would you like to learn more?

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Top 10 Tax Questions of Travel Nurses:

What is a tax home?

Can I rent from my parents and make that my tax home?

Where do I find fair market rental rates in my area?

What state do I file in?

How do state taxes work?

What are Per Diems?

What kind of records should I keep?

How long should I keep my records?

Can I get audited for low taxable wages?

What are the two most significant changes under tax reform?

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Start with our Travel Nursing Guide.

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