Travel Nurse Tax-Free Stipend and the IRS One-Year Rule
Updated: Nov 13, 2021
"I have been working as a travel AND staff nurse in the same metropolitan area for almost a year. Even though I have taken over 2 months of work off in between travel contracts my company is saying my stipends will now be taxed due to staying in the same area for so long. Can anyone clarify this? (My taxable home is in the same area however I am duplicating expenses while traveling)"
Travel nurses know that the best part of being a travel nurse is receiving a tax-free stipend as part of your compensation. Depending on how you structure your living expenses, it can really make the difference with the amount of income you get to take home.
Unfortunately, maintaining a qualified status to receive the stipend is riddled with unofficial rules of thumbs and just some plain old bad peer-to-peer advice from other travel nurses.
But failing to understand how to not only qualify, but maintain your qualification for the tax-free stipend, can land you in some hot water with the IRS.
You might hear other nurses say, “oh don’t worry about it”. “I’ve been doing it like this and I haven’t been audited yet” or “I’ll deal with it when it’s a problem”.
Here’s the truth.
When you’re standing in front of “the man” because you didn’t pay attention, none of these other nurses will be standing there with you or will be there to help you if things go south. Get the facts and follow the law.
As a refresher, let’s establish what a tax home is.
The IRS 2020 Publication 463 states your Tax Home as generally being “your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.”
As travel nurse, it can be difficult to determine what your “main place of duty” is, especially if you’ve had 3-4 assignments in any given year. For reasons just like this, the IRS created a three-part test to determine tax home status:
You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.
You have living expenses at your main home that you duplicate because your business requires you to be away from that home.
You haven’t abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.
If you satisfy two out of three items in the test, you generally will be eligible to receive a tax-free stipend as part of your travel assignment compensation.
Here’s the kicker.
After establishing eligibility for your tax-free stipend, you can subsequently lose that eligibility if you no longer can show that you have a “main place of duty” at your claimed tax home location.
The IRS makes it clear that a work assignment that lasts more than 1 year is no longer considered “temporary”, even if you “take time off”.
It does not matter if the months are sequential or not.
Think about it this way. If you’ve worked a travel assignment for 12 months and then take two months off, and then return to the location of your previous assignment for another 13 weeks. That is still a full 15 months of work at that location. In that case, it is apparent that your main place of duty is the location of that travel assignment.
You would not be eligible for the tax-free stipend.
I worked with a nurse with this same question. She came to me because she was confused about all the tax-home rules, as well as concerned that her fellow traveler’s advice was less than accurate.
After meeting with her, I helped her not only straighten out her taxes, but also helped her create a comprehensive action plan for her finances that included, retirement planning and investment management.
Now, she not only knows that she’s on the right side of the IRS, she’s also confident that her travel pay will go to work for her and create the life she wants to live.
Everyday we’re talking to nurses like yourself who are tired of missing out on the opportunity to transform their financial lives. Schedule your complimentary Explore call today.
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.