If you’re one of the thousands of nurses who have hit the road to cover for COVID-19 staffing shortages, you may find yourself in an unusual tax situation this year. There are several differences between how taxes work for a travel nurse and a nurse who’s a permanent employee at a hospital or doctor’s office.
Are you an employee or independent contractor?
The first thing you need to figure out is whether you’re an employee or an independent contractor. The IRS guidelines for travel nurses are very different for employee staff nurses versus independent contractor nurses.
- If you’re a permanent employee for a doctor’s practice or a hospital, you’re almost surely on a W-2 and this post doesn’t apply to you unless you want to learn more about becoming a travel nurse.
- Some travel nurses are hired as employees by either a staffing agency or a hospital. You’ll get a W-2 at the end of the year. You can tell you’re an employee if you filled out a W-4 and I-9 when you started your travel position. There’s one quick note for you in the next section, but your tax rules are mostly the same as W-2 employees.
- Some travel nurses are hired as 1099 contractors. You’ll get a 1099-NEC at the end of the year, and that’s what this post is about. You should have been asked to fill out a W-9, and most places will also ask you to fill out an independent contractor agreement.
As to why some travel nurses are contractors and some are employees, it comes down to accounting technicalities. For this post, we’re going to assume hospitals are doing things correctly.
However, if you believe you’ve been improperly classified as an independent contract, you can start with this IRS guide.
How do taxes work for employee travel nurses?
Travel nurses who are W-2 employees will pay taxes just like they would back home. Due to the tax law changes back in 2018, you can’t take any travel expense deductions.
Are travel nurse stipends taxable?
Your employer is allowed to pay an employee travel nurse a tax-free stipend in certain circumstances. The stipend can cover things like your travel expenses, lodging, and additional costs of eating out.
To qualify, you generally must meet the following requirements.
- Have a tax-home. This is a permanent residence that you maintain and can/do go back to.
- Be away from your tax home. Some people say working more than 50 miles away, but there’s no hard rule. You need to be outside of your usual metro area and a reasonable commuting distance.
- Be duplicating expenses. The purpose of the tax-free stipend is to cover for the fact that you’re paying for two homes. If you rent out your primary residence or don’t maintain a permanent home and move as you travel, you don’t have duplicate expenses.
- Not stay in the same place for more than a year. To be a travel nurse, you need to be traveling. The test for this is the one-year rule. If you stay in a place for 12 months, the IRS doesn’t consider it to be a temporary assignment. There’s no taking a vacation to reset the clock, either. You need to actually be traveling between different areas.
Other than that, the rest of your W-2 income gets taxed as usual, and you’ll be able to qualify for all of your usual deductions and credits.
How do taxes work for 1099 travel nurses?
How do you get your 1099 as an independent contractor travel nurse?
You should get a Form 1099-NEC from whoever paid you. This could either be the hospital or the staffing agency depending on how you’re working. If you’re wondering what NEC means, it’s Non-Employee Compensation. The IRS split off non-employee compensation from Form 1099-MISC, so for your purposes, it’s the same form with a new name.
You do not get a W-2 as an independent contractor. W-2s are for employees only. If you’re an employee, see the info above. The rest of this post doesn’t apply to you.
What counts as your income?
Everything your hospital or staffing agency is income when you’re a contractor. This includes if they pay you mileage, reimburse your lodging, or cover other living expenses. The good news is that, unlike employees, you can deduct your expenses (more below).
So basically, what the IRS wants you to do is to add every dollar you receive and subtract your expenses instead of just reporting your net income after expenses. In other words,
Gross Income (every cent you received) minus Deductible Expenses equals Taxable Income.
So the IRS wants to see $3 – $2 = $1 not just putting $1 in to start with. Think about it like your math teacher wanting you to show your work.
What taxes do travel nurses pay?
You may need to pay four taxes as an independent contractor.
- Federal income taxes according to your tax bracket.
- 15.3% in self-employment taxes (Social Security and Medicare).
- State income taxes for each state you worked in.
- City or other local taxes if the place you worked in has a city income tax or similar tax.
If you traveled outside of your home state, be sure to keep records of how many days you spent in each state, how much you earned there, and what expenses you had in each state. You’ll need this information to determine how much you owe in state taxes.
What deductions can travel nurses take?
You may be eligible to take the following deductions on your Schedule C (the form you use to file your taxes as part of your 1040).
- If you drove your own car outside of your normal home city or general area, you can take a mileage deduction at the IRS standard mileage rate. The standard mileage deduction covers the costs of operating your car as well as depreciation. If your work is located in your home area, mileage to and from home isn’t deductible.
- Travel expenses like airfare or rental cars. You can’t deduct mileage for a rental car, because you can already deduct the cost of the car, gas, and tolls.
- Meals are also deductible while you’re traveling. The usual rule is you can deduct 50% of the cost. For 2021 and 2022, you can deduct 100% thanks to Congress wanting to encourage people to help restaurants stay in business. If you don’t want to save your receipts (or don’t eat that much), you can take a standard meals deduction equal to the GSA per diem rates.
- If you had to buy your own professional liability insurance in order to work as a contractor, you can deduct that as well.
- Other expenses like scrubs and medical equipment you had to purchase are also generally deductible.
- If you’re required to pay for things you also use for personal purposes, like a phone you have to have for work, you can deduct those expenses based on the portion that is for business or work.
There are three other potential deductions on your tax return.
- Qualified business income deduction. If you made less than $164,900 in 2021 or $170,050 (double those numbers if you’re married filing jointly), you can deduct 20% of your net profit. In other words, if your net profit was $100,000, you get taxed on $80,000. If you made up to $50,000 more than those limits as a single filer or $100,000 more as a joint filer, you get a smaller deduction. If your income was even higher, you don’t get the QBI deduction.
- Retirement accounts. You can still contribute to a Traditional IRA or Roth IRA as an independent contractor. You can also open a solo 401(k) or SEP IRA if you want to take additional deductions.
- Health insurance. If you purchased your own health insurance and aren’t eligible for a plan through your employer or your spouse’s employer, you can usually deduct your health insurance premiums as a business expense. The reason for this deduction is you don’t get taxed on health insurance your employer pays for.
Should you form an LLC?
An LLC won’t help you for tax purposes. There are no tax savings, and you don’t need an LLC to take your business deductions.
What is the business code for a travel nurse?
One of these codes will apply depending on where you’re working. The IRS mainly uses this for statistical purposes. It doesn’t affect your taxes.
- 621110 Offices of physicians
- 621300 Offices of other health practitioners
- 621400 Outpatient care centers
- 621500 Medical and diagnostic laboratories
- 621610 Home health care services
- 621910 Ambulance services
- 621990 All other ambulatory health care
- 623000 Nursing and residential care facilities services
- 623990 Other residential care facilities
- 624100 Individual and family services
When are your taxes due?
Travel nurse taxes are due on April 15th, just like other individual income tax returns. You will also need to pay estimated taxes since there are no tax withholdings for independent contractors. Estimated taxes, or quarterly taxes, should be 25% of the tax you expect to owe for the year. Estimated tax payments for the 2022 tax season are due on April 15, 2022, June 15, 2022, September 15, 2022, and January 15, 2023. A penalty may apply if you don’t make quarterly payments or if your quarterly payments are too low.
California Taxes for Travel Nurses
California taxes work similarly to IRS taxes. The main step for California travel nurse taxes is figuring out how much of your income is California income.
If you’re not a California resident, California can generally only tax you when you’re working in California. When you have contracts outside of California, only your home state and the state you’re working in can tax you.
If you are a California resident, California can tax you on your entire income no matter where you worked.
How to Prevent IRS Audits as a Travel Nurse
There is no guaranteed way to prevent IRS audits. The IRS randomly selects tax returns to audit.
Some audits are because your tax return got flagged for a mistake. You can avoid those by understanding the tax rules and carefully preparing your tax return.
You should also keep good records of your income and expenses. If the IRS does select your tax return for an audit, you’ll be able to show them you paid the right amount.