There’s not much worse than doing your taxes. But the threat of an audit may be worse.
Travel nurse income is complex and this can increase your risk of being one of the unfortunate ones chosen by the IRS.
As a travel nurse, you want to hope for the best and plan for the worst. There are ways to protect your tax return from an audit.
In this guide, we’ll go through the risks travel nurses have of getting audited, and how you can reduce your risk of it happening to you.
Table of Contents
- Could You Be at a Higher Risk of an IRS Audit as a Travel Nurse?
- Why Travel Nurses Are at a Higher Risk of Getting Audited
- What Are IRS Red Flags?
- What Does the Law Say About Taxable Hourly Wage for Travel Nurses?
- What Is an Accountable Plan?
- What Does This Mean for Travel Nurses?
- What Should the Minimum Taxable Wage for Travel Nurses Be?
- What Does the IRS Know About Your Income?
- Underreported Income
- What You Can Do to Avoid an Audit
- Keeping Proper Records
- Properly Label Your State of Residency on Your Tax Return
- Trusted Nurse Staffing Is Here to Support You
Could You Be at a Higher Risk of an IRS Audit as a Travel Nurse?
In short, maybe.
Travel nurses are paid differently than permanent staff nurses. They receive both base hourly pay that is taxed and additional “payments” that are not taxed. These two sources of income make up a travel nurse’s total pay package.
These additional stipends can include such things as:
- Meals
- Housing; and
- Work-related expenses
Because these things are considered expense reimbursements for doing your job as a travel nurse, they are not considered income and are non-taxable.
To qualify for these stipends, you need to work at a facility greater than 50 miles from your permanent tax residence.
This results in a duplication of expenses for things like:
- Rent
- Utilities; and
- Meals
It’s important to note that we are not legal experts, and we always recommend talking to a tax professional. Travel nurses can experience tax audits at a higher rate than other positions because of the high rate of nontaxable income compared to taxable income.
Why Travel Nurses Are at a Higher Risk of Getting Audited
Travel nursing income is not a traditional “make a base pay, get a W-2” position. The way that a travel nurse’s income looks on paper can look suspicious to the IRS.
Here are some reasons why travel nurses have a higher chance of getting audited:
- Your expenses compared to your income can look suspicious. The IRS may see a lower base pay, yet unusually high expenses for that base pay. The IRS may want to double-check to make sure you’re being honest on your tax return.
- The travel nurse agency may be audited, which means the IRS will look into all of its employees.
- Your taxable income may be low enough for the IRS to take notice.
- You may have a lot of deductions on your tax return.
Not all audits are brought on by red flags. You could just have bad luck!
Travel nurses may make more than staff nurses, but the income flow looks different for a travel nurse than a stationary, full-time position at a hospital or facility.
What Are IRS Red Flags?
IRS red flags, in short, are anything that the IRS thinks is suspicious.
Tax returns with anomalies are more likely to be flagged for an audit. Below are a few that may apply to travel nurses and why travel nurses may get audited more often.
Failing to Report Taxable Income
This is, of course, a big oops. The IRS has means of knowing if you left out sources of income. They receive copies of income reporting forms such as 1099s, W-2s, etc. that are sent to you.
They then match this information to individual tax returns to ensure all income is reported. If this is inaccurate, they may begin to consider what else you could be hiding.
This then raises a red flag to the IRS.
Deductions Are Disproportionately Large Compared to Your Income
If your deductions or credits on your return are disproportionately large compared to your income, another IRS red flag could be raised. If you’ve got the documentation to back it up, that’s ok.
It’s important to keep in mind that tax reform laws did away with many tax deductions of job expenses at the federal level. Be sure to check your state laws as these may differ.
Big Deductions for Meals and Travel Expenses
Under the new law, taxpayers can continue to deduct 50% of the cost of business meals if you, the taxpayer, are present and the food or beverages are not considered extravagant.
Unfortunately, that triple-Michelin star restaurant you wanted to try in your new city probably would not qualify. You can still try it! Just not on your agency’s dime.
Still a good rule of thumb:
Document everything you think is a possible deduction on your taxes.
What Does the Law Say About Taxable Hourly Wage for Travel Nurses?
There is no law, statute, or IRS regulation specifying the exact taxable hourly wage for travel nurses. So audits and red flags are reviewed on a case-by-case basis.
What Is an Accountable Plan?
This is the responsibility of your travel nursing company. To legally pay tax-free reimbursements, the travel nursing agency must have what the IRS calls an “accountable plan.” An accountable plan is created by your agency to document rules for allowance or reimbursements.
A travel nurse can receive reimbursement for expenses if their accountable plan has these three rules:
- Your expenses must have a business connection. You must have paid or incurred deductible expenses while performing services as an employee of your employer.
- You must adequately account to your employer for these expenses within a reasonable period of time.
- You must return any excess reimbursement within a reasonable period of time.
The definition of a “reasonable period of time” depends on your situation. Either way, it does mean that you must account for your relevant expenses to your travel nursing agency.
What Does This Mean for Travel Nurses?
Review your contract thoroughly and see if those three rules mentioned above are included in their reimbursement plan.
The IRS is concerned about excess reimbursements. Even if your agency does have an accountable plan, each expense you have may not meet those three rules and are subject to a different set of rules.
It’s good practice to know:
- When and how you need to report your expenses
- What your base rate of pay will be
- What are reimbursements you can expect
Individual agencies, associations, and tax experts are often left to make judgment calls on where expenses fall in these categories — Is that expense labeled as reimbursement or not?
What Should the Minimum Taxable Wage for Travel Nurses Be?
The minimum taxable wage for travel nurses varies depending on the contract. What you should accept depends on you.
It may seem like having non-taxed stipends is a great deal for a travel nurse. But this income will not be reported on your annual income and this has a few drawbacks.
If you find yourself considering a …
- Loan
- Mortgage
- Disability payment; or
- Are reaching the age to collect Social Security
… these institutions look at your reported income.
They make a judgment on that number whether you have the means to pay back a loan, to afford that mortgage, or how much Social Security you are entitled to. Consider carefully if you have any of these financial goals and how banks and financial institutions look at your income.
What Does the IRS Know About Your Income?
The IRS knows a lot more than you think.
They have everything you included with the tax return:
- Mortgage interest
- Dependents declared
- Previous tax returns
- Etc.
Underreported Income
Travel nurse tax returns can look suspicious regardless of their truthfulness. It’s best not to give the IRS any more reason to look twice at your return. Underreporting your income is a criminal act if you willfully disregard the tax code.
Omar, for example, made a calculation error and accidentally included a couple more deductions on his return than he is owed. He might still be penalized by the IRS, but won’t be charged as a criminal for it.
Yannika, on the other hand, intentionally labeled her taxable income as far lower than it should be to attempt to pocket more of her income. This is dipping her toe into willfully disregarding the tax code, opening her return up to intense scrutiny by the IRS.
What You Can Do to Avoid an Audit
This may sound like it’s coming from a broken record, pun intended, but it’s essential to keep your records.
Keep Proper Records
Get organized and stay organized.
As a travel nurse, documentation and record-keeping is likely something you are already well versed in. Travel nurses frequently have to present documentation for new contracts or agencies.
A good rule of thumb is to keep your records for seven years.
As time passes and you move from assignment to assignment, sometimes it’s hard to keep all of your records together. If for some reason you are missing receipts or other documents, you can reconstruct those records.
You can be audited for a return you filed two to three years ago — so it’s a good idea to keep as many records as you can.
Here are some examples of receipts you can include in your tax return records:
- Uniform and scrub expenses
- Utilities
- Continuing education courses or certifications
- Housing and lodging expenses while traveling
Copies of Your Contracts
Keep copies of all of your travel nursing contracts. This is proof that you worked away from your tax home.
Copies of Travel Expenses
In addition to typical print or digital receipts, it’s important to keep copies of things like:
- Credit card statements
- Bank receipts
- Pay stubs
- Mileage logs
Depending on your state of permanent residence, job expense deductions may look different.
Properly Label Your State of Residency on Your Tax Return
The IRS considers your tax home as your city of permanent residence or where you regularly live.
As a travel nurse, you’re often working in temporary placements an average of eight to ten weeks long. Working in any location for under twelve months is not considered a move of permanent residence.
This is an important distinction to make on your tax return.
Trusted Nurse Staffing Is Here to Support You
Just in case you need to survive an IRS tax audit, those of us at Trusted Nurse Staffing are here to support you.
The reason you became a travel nurse, or are thinking of becoming one, probably has nothing to do with deductions and meal reimbursements. Those are just a bonus.
We make our payment and invoicing process as simple as possible.
Depending on how you prefer to keep your records, our nurses can choose to be paid weekly or can choose direct deposit or live check.
Our payroll app and website make reviewing your paystubs easy. There, you can also change your address, and view your year-end tax documents with ease.
The staff at Trusted Nurse Staffing are here to support you along the way.