There are patients that we dread to care for. During report, we tactfully offer to take more patients, a more critical patient, or even offer to float to another area to avoid being assigned to the ONE patient no one wants.
In the tax world, one conversation tax professionals dread is with a taxpayer who filed exempt and owes a bundle of taxes.
You do everything you can to avoid the obvious, and you hope the taxpayer is already aware of their situation. If they confess, it’s your chance to exhale.
What is “filing exempt?”
“Filing Exempt” is a term that describes any change in withholding that claims extra exemptions or declares outright exemption for tax withholding. The form that is used for this is called the W4. Most states follow this Federal form, but some have their own that works similarly.
Travel nurses file exempt for various reasons.
The most common is to bolster take-home pay during a financial hardship. Those periods in life are understandable, but there are other reasons travel nurses file exempt that do not benefit them in the long haul, especially when there is an amount owed with the annual tax return.
1) Extended period of overtime
Travel nurses often confuse tax withholding with actual tax. The statement that someone is “taxed more” for working overtime is misleading. While more taxes may be withheld during an extended period of overtime, the extra withholding is triggered by formulas that anticipate taxes based on a prospective estimate of total annual income. If one makes $1000 a month, the withholding formula will base withholding on $12,000 a year. If they make $2,000 a month, the withholding will be based on $24,000 of income for the year. A dip in earnings or a part-time second job can trigger less than optimal withholding for that source of income when compared to the total income the travel nurse earns for the year.
2) Bonuses
The same principle discussed in #1 applies here. However, the IRS stipulates that a 25% flat amount be withheld for these payments. The employer can use the W4 claim as an alternative. The 25% is not a tax but simply a mandated default withholding rate to ensure adequate taxes are withheld.
Take Away’s
If you anticipate an extra boost of income or a large amount of deductions, consider the following before filing exempt from tax withholding:
- Only adjust your withholding slightly by 1-3 exemptions. You may have some excess withholding, but you are still earning income that needs tax payments, and it prevents the worst-case scenario of the next takeaway.
- Make sure that if you file exempt or significantly increase your exemptions, to change the withholding back quickly. Many travel nurses forget to do this. A one-month delay can cause the travel nurse to owe at the end of the year.
- Just ignore it and leave the withholding where it is. You will get a larger refund at the end of the year, but it is one less hassle to deal with.
We hope you found this article on whether a travel nurse should file exempt or not helpful. We hope it answers any questions you may have.
Interested in a travel nursing job? Our job board is a great place to search for assignments, and if housing is an issue, our housing page can help. It’s time to make a difference!
Would you like to learn more?
Check out the TOP 10 Questions for Travel Nurses on Taxes.
