TravCon will be held in the Paris Hotel from September 26-29th, 2021! Paris is an amazing venue with luxurious guest rooms, plenty of space for our conference, and in the middle of the Las Vegas Strip. Please join us! It will be incredible!
Our 2020 Client Workbook is now available, please click on links below to download new workbook. Whatever you do, do not wait long to at least get your file started with TravelTax. To get your file started, you may do so by sending in the contact information page (from workbook), travel contracts (if you are a traveler), previous year’s tax return (if you are a new client), and a copy of your driver’s license (if you are a new client or if your previous one is expired). Once you receive your tax documents, please send those to add to your file. Please note, even though it is first come, first served, we cannot schedule an appointment for you until you have sent in ALL your documents.
We look forward to working with you in this tax season!
2020 WORKBOOK: Get Yours
It is all about the documentation. Sorry, you can’t escape it.
For us to do your taxes, the workbook needs to be completed and submitted to us (put N/A in any section(s) that do not apply to you). A wise traveler will download it on their first assignment and document each assignment as you go through the year. Trust us, it is much easier that way. In the process of filling it out, you will learn what records need to be kept.
TO USE THE WORKBOOK AS A PDF FILL, YOU MUST DOWNLOAD ADOBE READER PROGRAM IF NOT ON YOUR COMPUTER (It is a free download, no sign up/password required). Save the workbook on your computer. Then OPEN THE WORKBOOK IN THE ADOBE ACROBAT READER DC PROGRAM (because just installing it isn’t enough, you will have to make sure you use it). You will then be able to type and save it as often as you need to using Adobe Reader (download Adobe here). Or you can just print it out and handwrite the answers.
(Mac users: Do not fill out workbook in Apple Preview mode as it will not save your work and will print it out blank.)
RECEIPT ENVELOPE: Get Yours
Our Receipt Envelope is helpful to help keep track with your receipts. In 2018 the standard deduction increased significantly, but there might be some deductions at the state level that you might want to deduct and keep up with in the following states: AL, AR, CA, HI, MN, NY, PA and MA (transit passes).
Think of this as your “required reading” before you sign your first tax home statement.
There are 3 requirements; you MUST meet 2 out of 3 requirements in order to qualify for tax-free stipends.
Through Fully Taxed Work (on a regular, annual, cyclical basis): You can meet this goal by earning roughly 25% of your yearly taxable income at this location. If someone works registry/prn at home, that 25% goal can be met fairly quickly since the local hourly rate is usually much higher than a traveler’s taxable rate (10-12 weeks may be enough). Another method would be to work one local contract every year at home, taking the higher taxable rate, or having the housing & meal per diems fully taxed. If you maintain your tax home through fully taxed work, no duplication of housing expenses (rent/shared expenses) required. Also, while working there, you will have fulfilled the 30 day minimum requirement in your tax home per year. It is assumed you are living there if you are working there.
Through Maintaining a Residence: You worked there fully taxed prior to traveling, and instead of working fully taxed there yearly, you choose to maintain a residence in your tax home. If you own a home, you are paying the mortgage/utilities on it, and if you rent your home out, this home is not rented out 100% of the time you are away. Or you can either pay rent or shared expenses. Rent is a for profit situation, fair market value (comparable to similar rooms/apartments in the area – print out a couple of these ads and keep it with your tax info), there is a rental agreement, and the person you’re renting from would have to claim it as rental income. Shared expenses are an expense reduction scenario (a roommate situation) with an informal roommate agreement, sharing the expenses (mortgage/rent or property taxes and homeowner’s insurance [if home is paid off] + utilities in the home, and dividing it by number of bedrooms in the home), and would not be considered rental income and therefore not reportable to the IRS.
Have documentation of your tax home by putting a copy of your driver’s license, car and voter registration, paystubs, flight receipts, and any housing expenses you’ve paid there via PayPal, Venmo, Zelle, or checks into a folder/envelope for every year that you are traveling. Also, if you’d like to request our free receipt envelope for expenses on the road, you may request it here: https://traveltax.com/receipt-envelope-form/
Plan Wisely! You will need to look at your life and see which option is best for you. Too often we see travelers wanting to maintain their tax home through yearly fully taxed work, so they don’t have to pay rent, but something happens… i.e. they get stuck on the other end of the country, decide to extend… or the only local assignment is at the “nasty” hospital so they refuse to do that local contract and just go to CA instead… AND THEY ABANDON THEIR TAX HOME, CAUSING THEIR TAX-FREE STIPENDS FOR THE YEAR TO BE TAXABLE!
Choose your method of maintaining a tax home and stick with it while traveling. You either pay taxes for a few months while working in your tax home area OR you pay rent/shared expenses for the whole year. So follow the method that you commit to. Do not change during the year!
Schedule a tax home consult with us if you are unsure or need to change your tax home!
IMPORTANT! – – PLEASE REMEMBER THAT THESE OPTIONS ARE BASED ON YOU MAINTAINING YOUR TAX HOME WHERE IT IS NOW. IF YOU WANT TO CREATE A TAX HOME IN A NEW LOCATION, YOU FIRST NEED TO EARN SOME FULLY TAXED INCOME THERE BEFORE YOU TAKE OFF ON YOUR TRAVEL CAREER! (See FAQ below on Tax Home – How do I get a tax home if I don’t have one already.)
It is not distance but what you do at the end of the shift that determines if the assignment is far enough away to qualify as a travel assignment. If you work a travel contract but return home at the end of the shift, you cannot deduct miles or meals, and all tax-free per diems or stipends are taxable. Sad, but true. The 50-mile radius is an internal company benchmark for their own policies or a facility rule for premium pay. They are not based on IRS guidelines.
Why? All of those deductions/tax-free stipends are based on: 1) the worksite being too far to return home every day and 2) it is a temporary job (so you can’t be expected to move your residence there). When that happens, an employee has the double burden of maintaining two residences and everything in relation to that second residence is now deductible or can be given as a tax-free reimbursement. If you return home at the end of each shift, you are showing that it is a commutable distance and deductions/tax free stipends are disallowed. The IRS uses the term “sleep and rest test.” So far away that you need to stop and rest/sleep before you can safely return home.
Lastly, just because you sleep away from home, does not mean that an assignment 30 miles away qualifies you. It still has to be farther than a normal commute for a local. Maybe 90 min or more?
Record-keeping can be frustrating for travelers, and we realize that. However, if you were audited and did not have those records, you risk the tax-free status of the per diems and other reimbursements. That can add up to about 15-25% of the total in taxes. (Ouch!)
The IRS can be notoriously vague with their terms. As a result, we have striven to develop a few concrete suggestions for travelers. They are based on court cases (by citing records), IRS attorney recommendations to auditors, and audits (personal experience). If you follow the guidelines below, you will be in a more defend-able position if audited. The thing you need to look at is 3-fold.
HOWEVER: if you stay in one state more than 2 years (where all of your income comes from that state) that state may want to consider you a full-year/permanent resident and tax you on ALL income (like interest, capital gains, etc.). Provided that you have maintained your tax home well (adequate time and money), your stipends and other tax-free money will not be in danger of being taxed. It is important to note that on a federal level (IRS), there will be no issues, this would be a state issue and would involve different state income tax rates. Do you really want that headache? Remember that there are 50 states out there, go someplace different! Don’t just keep circling the wagons! Go somewhere else!
Practical Things You Should Do:
It is important to note that most of these FAQs assume that the traveler has a qualifying tax home and is working as an employee (not self-employed/1099). We have tried to put in as many variables as possible, without making it confusing. The Q&A stem from years of research. Most recommendations and tax law interpretations are based on audit experience and court cases, which are available upon request.
Also, these Q&As just cover travel issues. Check out the general tax info available on the Business and Non-Traveler page of our site!
Sorry, it does not exist. Nope! Nada! No basis in IRS code. It is just an internal company policy (also common in facility bill rates) that has been used so much everyone assumes it comes from the IRS.
According to IRS pub 463, a job is far enough away if “you need to sleep or rest to meet the demands of your work while away from home.” If that rest takes place on your own pillow, in your own bed at home, you are not away from home. It does not matter if that job is 90 miles away. By returning home, you are proving that it is within commuting distance of your home, therefore, not a travel assignment.
TRIVIA: The origin of this “50 mile rule” is based on a series of misunderstandings.
Believe it or not, your individual agency shifts are considered “indefinite employment,” because it is an employment agreement without a contracted end date. No end date means it cannot be considered temporary. All indefinite employment is treated as a permanent job.
Think about it, most “normal” jobs are indefinite, a two-week notice is all that is ever expected. Even though the work agreement extends only for a shift, the employer-employee relationship continues just like any other permanent position. If you are utilizing it as a stop-gap between assignments, it may be best to put a short term agency/PRN commitment in place. i.e. You will be available to work between the dates of: ___ and ___.
Set up a tax home consult on our website if you feel a PRN or per diem job has jeopardized your tax home.
Understandably, being audited is a significant fear for travelers. While it is true that a traveler has a higher chance of an audit, that is no reason to stay in a boring staff job.
Audits come about for various reasons:
If you have a solid tax home and keep good paperwork, you should not wind up with any financial damage. Just hassle. If you use TravelTax, there is no charge for audit defense for any return we prepare and file.
YOU MUST KEEP A RECORD OF YOUR MILES! We cannot stress how important this is. Transportation reimbursements ARE NOT per diems. They must be substantiated (proven) with some sort of documentation, showing: DATE, WHERE, WHY, & MILES DRIVEN. Without a log, you cannot prove that you spent the money your company gave you.
In the old days, people kept a physical log, on paper. Today, you can use things like apps that record mileage, or even going to a web-based map site (like Google maps), enter the two addresses, and print out the page. That takes care of the WHERE and MILES. The DATES and WHY can be proven with copies of your contracts.
Someone who does not ‘have a main place of work, AND/OR does not maintain a DWELLING’. No cyclical/annual place of work, no significant expenses in maintaining a residence of some sort.
This person’s tax home is wherever they work. As an itinerant (a.k.a. transient), a traveler cannot receive per diems, stipends, or travel money as tax-free because they are not considered to be traveling away from home. What they receive in these categories needs to be added back as taxable income on their tax return, or the company can do it for them and include it in their W2 wages.
See TAX HOME – Three requirements to determine if you have a tax home.
When most travelers decide to ditch the tax home (and go itinerant), they usually do not realize what it entails. All monetary reimbursements get taxed (meals, stipends, travel). THE BIGGEST SHOCKER is that the VALUE of the non-cash benefits also gets taxed. i.e. whatever the company pays for your housing, gets passed on to you as income. On an annual basis, that could mean up to $24,000+ (the rent your company pays for you) in income that you never see and as much as $9,000 in taxes to be paid.
Traveling itinerant can be liberating with the freedom to go anywhere you want and stay as long as you like. Record keeping becomes minimal, and you no longer have to worry about returning home for 30 days a year (and losing paychecks for that time period). Also, there are many situations that can cost you more to maintain a tax home than paying the taxes. This is why we as a company try to make sure that becoming an itinerant worker is an informed decision. If you need to talk this out, schedule a tax home consult!
There is one touchy situation when both partners are travelers in regards to housing, and we are posting this table here to give you a heads up. The whys would take too long to explain here.
Both contracts with same company
Takes provided apartment
Subsidy is taxable
Both contracts with same company
Neither one taxable
Contract with different companies
Neither one taxable
These are maximum daily rates that can be given to an employee without an exchange of receipts. They cover lodging and meals for days an employee is away from home on the business of the employer (also called CONUS and OCONUS rates).
The rates are set by the government for every area of the world and are broken down by counties in the US. The rates can be found on various online sites and are set annually. As long as the allowance does not exceed the per diem rate maximum and the company has a reasonable belief that the employee would deduct these expenses without reimbursements, no receipts are required to be exchanged.
Note: It is the maximum rate, not the standard nor the minimum.
CONUS = CONtinental US
OCONUS = Outside CON US
The website for the GSA rates is a site that allows you to look up all current rates in every city.Occasionally you may run into a company that uses the High-Low Substantiation rates. These are GSA rates that are averaged into two categories. They are not published on the GSA site, but issued as a PDF annually. If you Google the term, you will be able to get the current version.
Per diems are only tax-free if you are working away from your tax home. And unless you are maintaining your tax home by annual fully taxed work in your tax home, you need to be able to show you are duplicating expenses at home and at the assignment. (see tax home) We all have to live somewhere, and we all have to buy our food. These things are not tax deductions (remember: mortgage interest is deductible, not the principal). Most people have a residence in one location and pay for that residence 365 days out of the year. When their job requires them to be temporarily out of town, a second temporary residence must be maintained. Be it a short term apartment or one night in a hotel, this second home is essentially a duplicated home expense incurred to earn income. To relieve this burden, the IRS allows your company to reimburse you for these expenses. These reimbursements are to cover the SECOND RESIDENCE, not the first. If a traveler does not have expenses for the FIRST residence, then that extra money coming from the company is INCOME and fully taxable.
BEWARE: The IRS requires the expenses for your primary home to be substantial (in the case of rent = fair market value) and it must be real. Also, renting out your residence to someone else may potentially disqualify it from being a tax home. Feel free to set up a tax home consult on our website to talk to us about this.
All of these are terms for “reimbursements.”
In temporary staffing industries, the terms are often used interchangeably. “Per Diems” are often used to describe the meal portion of the payment even though Per Diems include meals and lodging. The take away is that you need to clarify what the payment is for.
The determination of whether or not it is taxable is based on the Tax Home status of the recipient.
Because technically that is what they are; confusion arises in that they are given in advance of expenses instead of afterward. And they are for your away-from-home expenses, not expenses at your tax home.
A normal reimbursement process would be:
In the case of a per diem, the reimbursement amount is pre-determined per GSA rates, so there is no need to see a receipt. Therefore, it can be given ahead of time, but it is still considered a reimbursement.
BEWARE: Whether or not it can be accepted as tax-free depends on your tax home status and if you incur an expense at the assignment location (you need to pay something at assignment).
Because the IRS has up to 3 years to audit a return, usually they notify taxpayers about 2 years into that time period. Therefore, anything used to obtain the numbers put on the tax return needs to be kept 6 years and you can stretch it to 7 for a one year overlap. (If the IRS suspects major issues with unreported income, – and travelers do have a lot of income tied up in unreported reimbursements, – they can then open the audit up to 6 years.)
One item many travelers fail to keep is contracts. Every traveler needs to keep copies of their contracts! In case of an audit, it is their only proof that they really had a temporary assignment and get to keep all of those per diems as tax-free. You may also send a copy of your travel contracts to us throughout the year or when you file your taxes with us, via our secure Client Portal for additional record keeping.
This is probably the most frequent question we get from travelers, their recruiters, and even company owners. While everyone wishes there was a concrete rule, unfortunately, there is not a precise number of days given in the tax code, so we are left looking at various tax court cases, and IRS attorney opinions and make judgments based on that information.
The IRS term involved here is “break in service”, referring to the 12 month limit on temporary jobs and time spent away from one metropolitan area before returning. The IRS will generally consider a 3 week break as “insignificant”, a 7 month is “significant”, and 12 months as “definitely significant”.
Remember the IRS does not look at a calendar year to determine this, but what has been done over a 24 month period or longer. If a traveler worked in San Francisco for 11 months, returned home for 4 weeks, and then worked another 11 months back in San Fran, what justification do they have for it not being their tax home? Especially if they did not have any earned income at their claimed tax home for the last 2 years? You have to go back to the definition of a tax home= your primary place of business/income (before exceptions).
The safest rule of thumb is to never work in one metropolitan area more than a total of 12 months in a 24 month time period. This does not apply to a calendar year, so you have to constantly look back at where you have been, and where you think you will be going. Sometimes you can follow the simple formula= stay away as long as you were there.
Why all this confusion? Frequent and repetitive work engagements in the same area create a principal place of income. The duplicated expense method is an EXCEPTION to this rule for those that DO NOT have a principal place of income. Seasonal assignments are often treated as one’s principal place of income if there is no other location where more income is earned.
Not if you take it with you. In multiple audit cases, a residence is described as having a place to sleep, a kitchen, and bathroom facilities. If you take your RV on the road and leave nothing behind but a concrete pad, then there is no residence. You took the residence away with you. For duplication of expenses, there needs to be two residences. The one left behind at home, and the one you are needing at the job site.
I will tell you that we have had clients with vacant land that have bought two RVs. One nice and modern, and the other, um, maybe less appealing? They leave one on the land and take the other one with them. (Note: The RV left behind should have electric and water hooked up to make it a valid residence).
Here is the good news, your RV is a house. As long as it is your first or second home, you can deduct the interest on the loan as mortgage interest. (Yay!)
And because it is owned, you do get something back when you sell it. While RVs do not increase in value like real estate, as personal property, you can keep the proceeds for the sale tax-free, instead of throwing it all down a rental hole to a landlord. And for many travelers, the RV community has become a home away from home, giving travelers a group of friends in close proximity.
States with no income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming. Also, Washington, D.C. is tax-free for a non-resident and the US Virgin Islands only has a federal tax.
Highest income tax states: These are harder to evaluate, as what is taxed can flip-flop based on the different brackets and rates. But according to our own experience with travelers the top ten usually are: Montana, Maryland, Maine, Minnesota, Utah, Oregon, Wisconsin, New York, North Carolina, and Hawaii. (No particular order) The biggest surprise to many is that CA is not on the list. In California, a travel nurse’s 50K income is still taxed at only 3%. – almost poverty level for there!
You as the taxpayer are responsible to pay taxes in the state you work, regardless of where your tax home, or permanent residence, may be (absent any reciprocity agreements). You don’t buy something at Wal-Mart and pay the sales tax at Walgreens across the street! Every state wants the money it feels it deserves. It has a budget and obligations to fulfill to its residents. Most states obtain this money by way of income taxes. The state where you earned your income decides how much you pay.
When a traveler works in multiple states throughout the year, income has to be apportioned based on:
This is why we exist as a company. The federal return is one thing, but the states? Our job is to sort through it all.
Pennsylvania– The Keystone State does not accept Federal Per Diem Rates as an employee expense/deduction. This DOES NOT mean that the reimbursements you ALREADY received are taxable, but it does mean that any additional expenses cannot be deducted on the PA return unless receipts are kept. This is a distinct contrast as the normal practice is to deduct the balance of any underpaid per diems as an employee expense on federal and other state returns. — For travelers with their permanent residence in PA, this deduction loss means that you will pay slightly more in taxes to PA and its municipalities. If you really, really want to fight this, you can begin keeping all food receipts all year round, and maybe you will gain some of that back. —For the traveler that is just doing an assignment in PA, just sigh, and give in.
New York – New York requires all income earned all year with the same employer to be reported as NY source income on the W2 issued by that employer. Within the tax return, an apportionment form gets to the correct income earned with NY. What do you have to do about this? Nothing, that’s our job, but we do get some questions from travelers asking why their W2 lists all of their income for the year with the same agency as belonging to NY. No, payroll did not make a mistake. — Also beware that New York has very strict tax residency laws. Travelers there even as little as 6 months have received letters from NY, asserting tax residency and they want their taxes! While in NY on assignment DO NOT get a NY driver’s license, register your car in NY, or open a local bank account.
Washington, DC. – The good news here, DC can only tax its residents, but not all payroll departments understand this fact. Some will withhold for DC, and you will wind up having to file in the District to get it all back. The worst case is if the payroll company withholds where you are housed (MD or VA). These 2 states are a bit greedy, and will not refund your money. Ideally, your company will withhold to your home state if you are working in DC (just like they would if you were working in any other state without an income tax). Always check your first pay stub and make sure you are having the correct state withholding.
“Tax Advantage” is an old industry marketing slogan for a travel reimbursement policy that was used by many companies before the waves of audits that started in 2011. We prefer to not to use the term “Tax Advantage” for it is a reimbursement. Reimbursements are not taxed! Any employer having employees that travel in the course of their work, can reimburse for expenses incurred while the employee is away from home. The reimbursements given to the employee are tax-free provided there is a tax home and duplication of expenses. It is all perfectly legal otherwise would not have all these FAQs/Q&As discussing it.
The “advantage” (hence “Tax Advantage”) is that this sum of money is a reimbursement rather than earned wages. Reimbursements are not assessed Social Security and Medicare taxes, saving both the employee and employer 7.5% of that sum. Additionally, it is not subject to unemployment, workers compensation and disability saving another 1-3% for the employer (and sometimes the employee).
Generally, your tax home is “the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home”. Remember two things: the main place of business, regardless of where you may have your permanent residence.
How can a traveler have their tax home in a place where they may not work? Because they constantly keep changing the location where they work, which then allows their tax home to default to where it was before they started circulating, provided they do not abandon the tax home and continue to incur significant expenses to keep their main home. As soon as they remain in one place for 12 months, or have repetitive income in one area, their tax home then shifts to that income producing area.
A traveler can also reach a point that they are considered to have abandoned their tax home. If they go long periods without returning, stay for only a few days at a time that area is no longer considered home. This can cause the traveler to be considered “itinerant” where the tax home is wherever the traveler works. As a company, we suggest that the goal is 30 days a year at home or 60 every 2 years.
If you do not have a regular or main place of business or work, use the following three factors to determine where your tax home is.
If you satisfy all three factors, your tax home is the home where you regularly live. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are itinerant (your tax home is wherever you work and you cannot deduct travel expenses or receive tax-free housing and meal stipends). -IRS Pub 463
It is important to note that the only unquestionable tax home maintains ALL THREE requirements, not just two. If you have concerns about satisfying these requirements, please schedule a tax home consult with us. After this section on tax homes, we have attempted to put together a series of traveler profiles, where the traveler manages to maintain a tax home while only maintaining 2 out of 3. It may help you understand what maintaining 2 out of 3 requires.
Part 2 to the FAQ above:
In our experience, most travelers have a hard time maintaining a tax home by following requirement #1 (a job at home). This would mean that they work an agency/prn/part-time job of some sort whenever they return home. That leaves us with part 2 and 3 that must be satisfied.
In every court case focusing on requirement #2 where the taxpayer was renting, the IRS looked for reasonable fair market rental expenses. This means that if one was renting from relatives, they should pay the same as someone who was not a relative. Fair market value for rent can be found in the classifieds, craigslist, etc. and you should keep this info in your records along with canceled checks or some other third party record of your payments (Venmo, PayPal, Zelle). You can also share expenses of a dwelling with others just like roommates in an apartment. If you share a home, be sure to “share” ALL the costs, not just one item like utilities. If you own a home, or your name is on an apartment lease, this is sufficient proof of financial burden.
While this may seem like a hassle, it is essential information in an audit.
There are many individuals that work between 2 or 3 places in regular cycles. Depending on the circumstances, it can be to their advantage to have one location be considered the tax home.
The IRS would call this a “main place of business” or “post of duty”. It is determined by:
This Q&A is here to just alert you that there are situations that can create or flip-flop tax homes. Please set up a tax home consult with us to discuss your particular situation. The “tax home determination” and “main place of business” requirements are what we specialize in understanding and this webs site is already big enough!
Try to think of your permanent address as a legal address. It is the address you use to register your driver’s license or to vote. It is the place that you have used historically as your home, and the place you plan to use in the future. Usually, your permanent address remains until you take steps to change it to another location.
Your tax home is your primary area of fully taxed income. No legal ties required. Pro sports players are well known for living in one city/state (permanent residence) and playing for another city across the country (tax home).
The confusion is that for 99% of the people in the US, the permanent residence is in the same area as their tax home, but for travelers, it takes on a whole new meaning.
Many travelers get the idea of moving their tax home to a no income tax state, or a place where they can rent a cheaper apartment, to get their expenses down. It is a great idea, but they forget that they are “abandoning” their historical home and have no financial ties with the new area. Without getting into dirty detail as to why this is so important, we suggest that those who “move, then travel” – OR – those that “travel, move, and continue to travel” (see earlier definition of “moving”) attempt to earn income in this new area before treating it as a tax home. It does not “kill” your plans, but it adds additional risk should you incur an audit in the year that you moved. The income can come from a fully taxed travel assignment, agency/prn work, or other substantial employment. It does not need to be in the same job capacity. We encourage getting around 25% of your annual taxable income to create a substantial enough base.
This is the equivalent of waving a flag in the air, saying look: I live here now, I work here, and I pay all of my taxes. Remember, now it means that you must maintain this location as your tax home, returning frequently or for a substantial amount of the year. Going forward income is no longer required every year… but it does help.
Advantages to being an Itinerant Worker
If you do not have a tax home, the IRS considers you “itinerant” and your tax home is wherever you are working. Money is not everything in life and living around a tax deduction can defeat the advantages of traveling: freedom, professional experience, and exploration. However, freedom comes with a price and you must do the math to see if that price is worth it.
In the end, you may find that after you subtract the costs of maintaining your tax home, the costs of traveling home every so often, and losing pay for the weeks you take off to spend at home, your tax savings may have dwindled down to $3K-5K. You may find yourself deciding that it is a small price to pay for the rare opportunity to travel and experience new areas.
Things to keep in mind if you choose to be an Itinerant Worker:
In order to receive travel allowances tax-free, if you do not own a home, you must be paying “fair market value” rent. Look in the local paper for classified ads for the neighborhood, craigslist, or another web site like roommates.com. Clip or print these ads and put them with your annual tax information. Make sure that there is a traceable monthly amount going to whoever is the manager of the property. A rental agreement would be the best case scenario.
An alternative to renting is sharing the total cost of the residence (shared expenses). Get an average monthly cost of main utilities (water, power, gas) and add this amount to the mortgage/rent. Divide by the number of bedrooms in the home to get your shared expense amount. Pay with checks, Venmo, PayPal or Zelle, and keep a paper trail of your contributions. NEVER PAY IN CASH!
Sometimes friends or family are reluctant to take rent from travelers because they now think that they have to declare that income on their tax return, leading to more record keeping, filing a Schedule E, etc. Not necessarily. If they are of the I-hate-paperwork persuasion, there is a simpler option.
Your family member, or friend, can declare the received rent on the “additional income” line of their 1040 and calling it a “not for profit rental.” Yes, about 15-30% of what they declare will wind up going to taxes, but that is less than what you would have paid in taxes on your per diems. So everyone is happy, including Uncle Sam.
There are families who pool their money together and share all expenses. In that family, it does not need to be declared as rent. Sometimes it can even be justified by math. Expenses ‘X’ get divided by the number of adults living there.
Remember, your requirements in an audit would be:
1- Proof that you had the monthly expense (some sort of trail to follow the money).
2- Proof of how that amount was determined (actual numbers in calculation).
Generally no, but sometimes yes, under certain situations. Don’t you hate ambiguity?
Generally, you need to have a residence available for personal use in the area of your tax home, once you have rented out your house, it is no longer your residence, but a business property. However, here are a few options if you get the urge to become a landlord.
You rent it out and lease other accommodations somewhere in the same metropolitan area for yourself. This essentially turns your ex-residence into a business venture, regardless of profit or loss.
You rent it out, but retain a portion for personal use, NOT just storage. (This could be done in the case of an in-law apt, or renting to friends/family who you know well enough to stay at the house in between assignments.)
You rent it out as a vacation rental. This is great for those who live in tourist areas. You still must use the dwelling as your lodging and the period that you rent it cannot be all 12 months. Just let the snowbirds use it in winter!
Ralph is a Nuclear Task Manager from Raleigh, NC. Due to the uniqueness of his job, he regularly circulates over 6 different plants in the country, never more than 9 months in one place and has not worked in Raleigh since his college job ten years ago. However, he owns a home there, and his wife is a professor at Duke, his kids go to school there. Between contracts, every couple of weekends, and every holiday, he returns home.
Ralph meets criteria #2 and #3 due to the very frequent trips home, family ties, and expenses. Even though he keeps returning to the same places, they are in different areas of the country, and no one place can be assigned as more significant than any other. His tax home defaults to where it was historically and is maintained there since he has not abandoned it.
Adele went to college in her hometown and took her first job as an orthopedic RN at the local hospital. She has lived in the same home her whole life. Mom and Dad don’t take any money from her. When she got the urge to wander, she started her travel career. Fortunately for her, the hospital she works at is so short of help during ski season that she spends 3 months every winter working at her old job, while living rent-free at her parents’ home. She also goes back there in between assignments, and keeps her legal ties there. She makes $38,000 a year with her temporary assignments that vary by location and $14,000 a year in Aspen. (She makes about 1/4 of her annual salary there.) She also does not repeat another location annually outside of Aspen.
Adele is the perfect example of meeting criteria #1 and #3 in the determination of her tax home. She may continue to claim Aspen as her tax home and receive all her reimbursements tax-free provided that she keeps the locations of her other contracts changing constantly and does not repeat assignments in another single location. Her income at home needs to always be significant in relation to her other income. While this sounds like the ideal set up, it is very hard to maintain. You have to have a plan, stick with it, and document meticulously.
Wilma has it made with a tax home Wayne, Nebraska. She used to work in the local hospital, but she and another gal decided to go out and see the rest of the country. Wayne is a small college town with lots of old 2BR houses that sell for as low as $30,000. She and her friend split the rent on one of those tiny places for $350/month, with both of their names on the lease. Since she no longer works in the area, she makes a point of going home between assignments, hanging around several weeks each time, seeing friends, going to weddings, even renewing her CPR at the local hospital. Her bank is a national bank and all of her bills are taken care of online, making sure that all of her finances are still centered in Wayne.
Wilma satisfies Requirements #2 and #3. She pays a fair market value for her home, spends a significant amount of time there, and has all of her financial ties consistently in Wayne, indicating that she has not abandoned that location. In her case, she does well financially because her tax home is in a very low cost of living area. If she tried to do this with a tax home in Seattle, it would not be as easy due to not being able to afford to take several weeks off at a time without pay. Documentation of fair market value is essential in this equation.
A temporary job requires a contracted/expected end date under 365 days. As soon as an agreement to extend beyond that date is made, the job is no longer temporary, even if the 365 days are not up yet. It is the length of stay in one metropolitan location that is taken in to account, not the job itself.
Also, even though you may take a break from a particular location, if you sign an extension within 91 days after leaving the assignment, the agency may consider it continuous employment. The IRS would view premeditated (with intent) commitments to the same areas as continuous engagements even if you are away working elsewhere for 3 months. It is a technical issue where you may be hung out to dry, even though you are on the correct side of the line.
All transportation reimbursements need to be substantiated, preferably with a mileage log. Documentation must show: When, Where, Why, and How Far.
If used for an automobile rental: rental receipts, gas receipts, and the mileage log are also required.
Any money not “used up” by the log (or receipts) is supposed to be added into your income as excess reimbursement! This is completely different from a housing or meal per diem. Why? We can’t give you a reason. It is just the rules.
While most travelers like to have a low hourly rate to avoid income taxes, they sometimes forget the risk factors:
Financial institutions will usually not take per diems into account as income for qualifying for loans. Per diems are considered reimbursements, not income.
Workers Compensation and Unemployment regulations vary from state to state, but it is usually about 2/3 of your hourly rate. With an artificially low rate, any injury while on assignment could be devastating.
If you were to make a career of traveling, then it would ensure that your social security payments would likewise be low. (However, this is unlikely as SS is based on your 35 highest income earning years.)
“Lifestyle Audits”: If your reported income is not sufficient to support your large mortgage interest payment and/or dependents, the IRS may want to know where the money is coming from.
The practice of willfully reducing wages (taxable income) and replacing it with non-taxable compensation with the intent of avoiding payroll taxes. Being accused of wage re-characterization is the fear of the agencies, not the traveler. It shows an intent to defraud, and the company can be subject to some serious penalties.
This is a very involved topic, but in the last decade there were over 30 healthcare staffing agencies that had been involved in audits.
Below are links to websites that may help you learn and get connected to the traveler community.
We prefer emails for quick questions. Please email us and if we’re able to answer your questions we will! If not, we’ll let you know if you need to schedule a tax home or a preparer consult.We are unable to answer questions related to the use of tax software programs.
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