The COVID-19 pandemic has dramatically changed travel nursing, and it may affect your taxes as well. You may be earning more than in the past. Or you might have worked less because of a lower demand in your specialty or for personal reasons. You may even have taken a travel nursing job for the first time! No matter what your personal situation is, it pays to review your financial strategy to limit your risk and tax liability for 2021. Here are five travel nurse tax strategies that can help.
1. Use a higher income to qualify for major purchases
Earned more than you expected? You may want to put the extra income in an IRA account if you qualify or consider paying off a loan more quickly. You may also be able to use your earnings to make a larger purchase.
“If you don’t own a house, you can save your money for a down payment,” says CPA Jeffrey Barth of Travel Nurse Tax Pro. “One of the difficulties travel nurses often have is their W2 earnings can be fairly low. Qualifying for a mortgage can sometimes be challenging,” Barth says. “If your income is higher this year because you’re getting great rates and premiums, this might be a year to qualify for a mortgage in the second half of the year.”
2. Take your pay as taxable for local travel nursing jobs
If you’re working locally and can drive home between shifts, Barth recommends taking the salary as taxable income.
“The worst thing that can happen is claiming it as exempt income and finding out later under audit you have to claim it back and pay employment taxes, income tax audit, and penalties,” he says. “It becomes quite a burden down the road.”
RELATED: 3 travel nurse pay pitfalls to avoid
3. Be careful when filing in multiple states
If you work in a taxable state, check your paystub to make sure you see both state and local withholdings.
“With some local or regional recruiters and staffing agents, we sometimes see issues where they’re not familiar with the state withholding requirements through their payroll. Make sure your withholding is correct and maybe even run it by your tax person and get feedback for the states you’re working in,” Barth says.
It’s also important to keep track of returns in states where you no longer work. Barth notes that some states notice if you don’t file a return because you’re no longer working there and may try to tax you.
“Two or three years later, California somehow has your Santa Monica address and sends you a notice of foreclosed assessment. You, of course, never receive it because you’re back in Kansas. Eventually they get a lien against you and take money out of your account,” Barth explains. “They’ll impute your income and the tax and say since you forgot to file a return, they filed one for you. Our tax firm works with nurses to do local returns for them remotely. That way we’ll get a copy of that notice so they know about it and there’s no surprises.”
4. Check to see if you qualify for unemployment benefits
Barth notes that he’s worked with several travel nurses who’ve lost jobs during the pandemic and have filed for unemployment benefits. He recommends learning about the potential benefits to know which state you can and should claim unemployment in.
“For unemployment, they go back five quarters. A nurse may have good earnings in her fourth and fifth quarter, and her unemployment would be based on that. If you have low earnings on your W2 and your unemployment is based on that, you’ll have a low unemployment number,” Barth explains. “You also want to be careful not to claim unemployment in California, for example, when you’re really claiming New Mexico or Arizona as your primary residence.”
5. Get help from a professional who specializes in travel nurse taxes
Barth says he expects most travel nurses will be very busy the first half of 2021 while pandemic demand is still high, so it’s important to stay connected with a specialist early.
“Work with your CPA to estimate your potential tax liability. Make sure you’re filing an extension and paying your estimated taxes so you’re not getting caught with penalties,” he says. “Most of our travel nurses end up getting refunds, but there are a few that didn’t have the proper withholding and owe money. It’s really important to try to file early and stay organized.”
Whether you’re an experienced travel nurse or a newbie, following these travel nurse tax strategies can save you money and reduce your long-term risk. For a free initial consultation with Travel Nurse Tax Pro, visit travelnursetaxpro.com.