Travel Nursing Pay – The Disadvantages of Tax-Free Money

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You’re probably wondering why anyone would want to avoid tax-free money. I mean, who could possibly want to pay taxes, right? Unfortunately, there’s a catch. In fact, there are quite a few catches. First, you want to make sure you even qualify to receive tax free money. Once you’ve determined that you qualify, you must consider that your taxable income has ramifications for several other financial matters.  

Travel nursing pay and social security

First, your taxable income determines your social security contributions amount of money that goes toward your Social Security retirement benefit and tax-free stipends don’t count. The calculation determining your social security benefit is based on your 35 highest earning years. In the long run, the low taxable wage travel nurses receive from travel nursing agencies may not have much of an impact on their future Social Security benefit, but it’s still something that travel nurses should consider, especially if they intend to engage in travel nursing for a considerable amount of time.

Travel nursing pay, workers compensation and unemployment benefits

Workers Compensation and Unemployment Payments are also calculated as a percentage of your taxable wage. Workers Compensation is a mechanism designed to protect those who become injured at work and miss out on employment and wages as a result. The payment calculation varies by state, but the payment is typically 66% of the worker’s weekly taxable income. As a result, your workers compensation payments would be very low if you were to get hurt on the job. I once worked with a travel nurse who injured her knee on the job and required surgery that kept her away from work for over 3 months. Needless to say, she was quite dismayed when she received her first workers compensation check.

The same is true for Unemployment Payments. These too are typically calculated at 66% of your taxable weekly income. If you were able to successfully claim unemployment, your unemployment payments would be very low. However, this may not be that important as it will be quite difficult to file a successful unemployment claim when working with an agency. While every state is different, collecting unemployment payments typically requires that one be laid off without the offer of any further work. In a typical case, a worker in Atlanta who was laid off, but offered work with the same company in Chicago would most likely be able to file a successful unemployment claim. But when you accept a travel nursing job with a travel staffing agency, it’s understood that the nature of the job requires traveling to where the jobs are. So an agency may be able to deny claims based on the fact that they have plenty of work for you, albeit in locations you may not be interested.

Travel nursing pay and loans

Your taxable income also affects your ability to borrow. If you wish to purchase a new home, car, or anything else that may require financing, your taxable income is what will determine your eligibility. While I have been involved in instances where a lender was willing to accept some form of written statement from the agency attesting to the travel nurse’s full income including tax-free stipends, this is the exception not the rule and it’s probably extremely rare these days with the tight credit market. Financial institutions consider these payments to be stipends rather than income. Trying to justify it to the financial institution is typically futile.

Travel nursing pay and future salary negotiations

Finally, there is also the possibility that the tax-free income and the lower W2 total that results, could potentially impact your future salary negotiations. While this is highly unlikely, it is possible none the less. Potential employers may wish to obtain copies of your W2s during salary negotiations. They may also contact your former employers to verify prior compensation. You’ll want to stay ahead of this as best you can by offering explanations regarding you pay up front.

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10 replies
  1. Abby Zachery, RN says:

    I am coming up on a year on a travel assignment and understand that i need to leave because I won’t qualify for tax-free living stipend after that. Can I conclude this contract and come back to the same job on a new contract to retain tax-free stipend. If so, how long do I have to be away from the hospital?

    Reply
    • Kyle Schmidt says:

      Thanks for the inquiry, Abby! There isn’t a set rule as to how long you need to be away. However, the general rule based on prior court cases is that you can’t work in any one metropolitan area for more than 12 months in any rolling 24 month period. If you do, then it becomes your tax home and you would owe taxes on the income earned there. In your case, that means you’d need to work away from the metropolitan area you’re currently in for a minimum of 12 months. Please note that this information is provided for informational purposes only. Please consult a registered tax adviser, CPA or other professional for advice on your specific circumstances. I hope this helps!

      Reply
  2. Susan says:

    Since our hourly wage is not reported to the IRS this is not a flag. We’re travel nurses; our hourly wage is lower because of our other paid for and justifiable expenses. We also take off more time during the year so the gross taxable amount is also not a flag.

    Reply
    • Kyle Schmidt says:

      Hey Susan,

      It’s true that hourly wages are not reported to the IRS and that gross taxable income may not set off a red flag by itself. However, the “red flag” still exists. The biggest risk is actually on the agency’s side of things. In 2012 there were at least 12 staffing agencies audited by the IRS. And when an agency gets audited, their employees are also at risk. On an individual level, the gross taxable wage is just one factor the IRS considers when determining whether or not to audit. And they consider it in perspective with all the other factors they have available to consider.

      Also, the IRS does not allow lowering wages in lieu of covering expenses. The IRS refers to this as “wage recharacterization”. “Wages differing between professionals in the same facility with proportional differences in reimbursements” can get an agency in trouble. IRS Rev Rulings don’t set a specific wage for RNs, but they do make it clear that professionals should be paid a wage relative to what they could reasonably expect to make in the open market in order for a healthcare staffing company’s compensation package to qualify as an “accountable plan” (one that qualifies to provide tax-free reimbursements). I hope this helps!

      Reply
    • Kyle Schmidt says:

      Hey Tiffany,

      Pros: You won’t need to worry about maintaining a tax home. You will get full contributions to FICA, worker’s comp, disability, and unemployment. You will be able to easily demonstrate your full income to prospective lenders.

      Cons: Not all agencies are willing to pay full taxable rates. The gross pay will be reduced because the agency incurs more costs when they pay taxable wages (FICA, worker’s comp, disability, unemployment). The net pay will be less because taxes will be paid on a greater percentage of the pay package. You may not be able to receive “company provided housing” because it would need to be taxed.

      I hope this helps!

      Reply
  3. Chris says:

    I have two potential employers offering identical jobs. One is offering much more tax free with a very low taxable, but the other says that they won’t pay more tax free than taxable because it puts me at risk with the IRS. Is this true, and what type of tax free/taxable ratio is safe (and lucrative)?

    Reply
    • Kyle Schmidt says:

      Hey Chris,

      Thanks for the inquiry. The simple answer is yes, very low taxable wages can put you at risk with the IRS. There isn’t a definitive answer as to how much the taxable wage needs to be. However, tax experts often cite IRS revenue rulings on cases where this issue is involved and claim that the taxable wage for an RN should be at least $18 to $20 per hour or more. Here is a link to an article with more details on taxable wages for travel nurses. I hope this helps!

      Reply
  4. Edward says:

    Greetings again! Your website is wonderful for so many questions. My family is now considering joining my wife on her travel adventures, with me homeschooling the kids. With her taxable income listed around 31,000, when we go to look for insurance on healthcare.gov, it puts us in the category for Medicaid and tax credits for low income families. We don’t want to take benefits that we don’t need to, but the website only asks for taxable income.

    Reply
    • Kyle Schmidt says:

      This is a great question! Unfortunately, I’m not 100% certain of the answer. I’m not sure if there is a way for you to opt out of the credits if you want to. I’ll check with some folks and get back to you if I’m able to get a good answer. Also, I believe you can all to ask for assistance, but I may be wrong about that. In California, we’re able to call Covered California to ask questions, but I’m not sure if the Federal gov has a similar service.

      Reply

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