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Hey Travel Nurses! There is so much confusion around tax homes in the traveling nurse community. So today, let’s clear it up once and for all. What the hell is a tax home?
Alright, so we know that the bulk of a travelers compensation package includes their taxable base rate, their tax-free stipend, relocation bonus/reimbursement of mileage from your home to the facility.
We also know that the spice of life is in that tax-free stipend. I mean, after-all that’s how a staff nurse can go from clipping coupons to survive to wiping the tears of their haters with crisp Benjamins and flying off into the sunset dripping in Louis Vuitton.
So we’re all about that tax-free stipend.
Now, there are a couple factors that govern that stipend remaining tax-free. You’ve got to establish that tax-home and you’ve got to be able to duplicate your expenses.
What is a tax home anyway?
The IRS code defines a tax home as the geographic location where a worker earns the bulk of their income. The caveat of this is that it may not also be where you own a home or where you rent.
This is where a lot of the confusion comes in. A lot of travel nurses will tell each other that a tax home is where you live. It actually has nothing to do with where you live. It has to do with the location of where you earn your income - so where your job lives!
A great example would be for people that live in the Northeast. There are a lot of people that live, for example, in Connecticut but they may work on Wall Street. So they take the train to New York every single day. Their tax home is not Connecticut, it’s that geographic area where they work in New York and that’s where they’re getting taxed from.
Now, there’s something to be said about the IRS and the IRS code. The IRS code does things that they call tests. There’s usually not ever one criteria to qualify for something, there are typically three or more.
The three part qualifying criteria to establish a tax home:
You can perform your work business in the area that also happens to be the area of your main home as long as you’re using that area to perform that work business.
You have living expenses at your main home which you are forced to duplicate because of the nature of your business that takes you far away from your main place of lodging.
You have other members of your family, like your spouse or your children or people that depend on you that still use your main home for lodging and you do as well quite often.
A combination of all three.
Another thing that you can do to maintain your tax home is to have a PRN job where between contracts you always go back and you work a few hours in your tax home to make sure that you maintain that status.
These rules apply to more than travel nurses. They apply to workers who work places that aren’t necessarily close to where they lay their head at night.
So, the important thing to understand is: what parts of these qualifications can a travel nurse like yourself qualify for?
The number one thing is duplicating expenses. The duplication of expenses is what determines whether your stipend will be tax free or taxed.
A couple of things to remember with this: it’s not enough to have a friend in another place where you’re actually working on contract and they say “hey, you can stay at my house, i’ll only charge you $30.” You have to make sure the lodging expenses that you’re duplicating are comparable to the lodging expenses that you would have incurred if you weren’t at a buddy’s house.
An easy way to do that is to just hop on Zillow, hop on Craigslist, hop on whatever site that shows the rents in the area and figure out how much a one bedroom in this area cost? Now, it doesn’t have to be exact to something that you saw there. Obviously, all areas have ranges from the lower end to the higher end. But as long as it’s within that range, the IRS says that’s okay.
The important thing to understand is that the tax-free stipend isn’t just free money that the company is giving you. It's money that’s allowed to be given to you tax free because the IRS understands that while you’re away from home you still have to live somewhere. So what they’re trying not to do is to make sure that you don’t go into double taxation. That’s what the use of the tax-free stipend is.
That’s not to say that you can’t find good housing deals that are still within that range and still be able to pocket a good amount of that stipend. But, do it the right way and make sure that you’re ticking off all of the boxes to duplicate your expenses and maintain that tax-free stipend status.
No matter how you establish qualification for your tax home, the important thing to know is that you have a paper trail.
Whether it’s a bank check that is cut from your account to the person you’re paying rent, whether it’s a contract that states that you’re leasing a place for a certain area.
Make sure that you have the documentation in place so that you can ascertain no matter if you get audited, or if not, that yes, I have been duplicating my expenses and the tax-free stipend that I have been receiving is 100% legitimate.
If you have any other questions about establishing a tax home or ensuring tax compliance while traveling as a nurse, feel free to reach out and we’ll be happy to help.
Marlon is a licensed financial advisor at weshfinancial.com and is known as "The Travel Nurse Financial Advisor". Marlon specializes in helping travel nurses crush their financial goals by helping them optimize taxes, accelerate retirement savings, and maximize their investments.
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