Tax Advantage Program-Need explanation

  1. Can anyone explain to me how tax advantage program works? I am so confused. I have spoken with some travel nurses at my hospital but still need clarifcation in the simpliest form.

    I have heard that for example... A hospital will pay 30/hr, agency looks to see what government per diem rates are for the area you are going. Ex. 115/night lodging, 50/day meals. So you make 30/hr for 36 hours = 1080 + 115 x 3 nights and 50 x 3 = 495. You are taxed on 1080 but the 495 is tax free. So your per hour rate is 43.75/hr.

    Then, I've heard a few other ways which I can't remember. This is my dilemma. One travel nurse that travels to my hospital states that according to her taxes at the end of the year it looks on paper like she only made $60,000 when she really made 90,000 because the 30000 is non-taxable. Which I understand but how do you prove that you spent $30,000 on living expenses so you don't end up paying taxes at the end of the year. Ex. She gets paid per diem for 7 days/wk, she stays here locally with a friend (for free) and drives back to her home for the remaining four days. So, literally she has no living expenses whatsoever, just gas and meals. She says she does not end up paying taxes on her $30,000 because its tax free and she can pocket the money.

    However, my tax guy who has done my taxes for numerous years does not understand this and I don't understand it enough to explain it to him. He says you should get a 1099 for your tax free money at the end of the year...if the traveler can prove you spent "x" amount of dollars through receipts, etc. to match the amount listed on your 1099, you don't pay any taxes. If you fall pay taxes on the rest.

    What I don't understand, How does so many travelers get by with not reporting their expenses especially when you stay for free or you are not spending as much as the gov. allows you? How do you not pay taxes on it at the end of the year? It does not seem worth it to do travel to make more money, if you're still having to pay taxes at the end of the year or you're having to spend the exact amount your company allows you.

    Is there a way around it?
  2. Visit jnh911 profile page

    About jnh911, BSN, RN

    Joined: Mar '09; Posts: 26; Likes: 1
    Registered Nurse- ER/Trauma/ICU; from US
    Specialty: 7 year(s) of experience in ER, Trauma, ICU


  3. by   NedRN
    You don't have to account for tax free money. Although they are more properly called reimbursements, you do not have to save receipts to justify these reimbursements. If you spend less than the stipends/per diems, that is your money to do as you wish. If you spend more, only then do you have to have receipts should you want to claim that excess as a business expense at the end of the year on your return.

    The vast majority of agencies do not 1099 you for reimbursements (although most hospital seasonal programs will) if you have a tax home. They do not report the amounts to the IRS at all. One caveat to that, they may show the amount in box 14 on your W-2 but this is informational only, the IRS disregards it. You do not have to document these reimbursements on your tax return anywhere.

    There is a lot more to it than this, far too much to put in a single post. You do need to maintain a tax home to be eligible for tax free reimbursements and be working away from home. If you do not have a tax home, you are itinerant (your home is where you are) and almost your entire compensation including housing is taxable.

    But the bottom line is that you need a new tax guy, one who understands mobile professional taxation. Try Googling "Traveltax" - that is a good guy to go with and lots of information on his site even if you don't. PanTravelers is another good site for travel tax information. You can also try reading the source of the rules: IRS Publication 463 and 535, and also 1542 (for allowable reimbursement amounts without receipts), and Form 2106 to deduct expenses yourself in the absence of receipts.

    Tax professionals do not understand the entire field of taxation, just as med surg nurses don't know what happens in the OR (also nursing, right?) My mother specialized in college professor's taxes, and everytime whe picked up a new client, she had to revise their last three years of returns. Even though they were done by a generic tax professional.
  4. by   jnh911
    Thank you!!!
  5. by   picknenders
    Travel agencies can give tax free money for Housing and M&I because they are viewed as "double expenses", meaning that you already have that expense back home - therefore they can give you money for it. The problem which you will run in to is that some agencies take advantage of this (agencies don't pay tax on that money either), so they'll drop your pay rate to $10 per hour and pay the rest in per-diems. The lowest standard by IRS is $22.50 per hour - if someone tries to pay less than that, you are in jeopardy. It is true that each city dictates the amount of perdiems allowed. Overall, the tax advantage program is a good idea if you have the opporunity to go with it. Just be careful on the hourly rate.
  6. by   NedRN
    The IRS doesn't monitor hourly rates, and they have no way to see it. The only information they have is quarterly reports of your total taxable income (or more frequently depending on the size of the employer). High wage earners had audits in the past for wage swings, but never in our wage bracket. I've had swings myself of well over 50K a year without an issue, once all the way down to zero.

    Tax advantage plans are under close scrutiny by the IRS, but they are also based on IRS published tables (Publication 1542) and well laid out rule of Publication 463 and 535. There is almost zero risk by individual travelers in accepting low rate positions. Business expenses are deductible (or reimbursable) and only what is left over is taxable. If you are in a high cost area, your expenses will be higher. The IRS does not make you pay out of (taxable) pay for legitimate expenses.

    That said, I'd be interested in the source of your quoted $22.50 standard. It would be interesting to find out what their basis for that could be.
  7. by   picknenders
    Ned - you sound like you're well informed. You are correct that the IRS does not see your direct hourly wages - however, as you mentioned, they do have access to overall taxable earnings. While you may have not experienced an audit due to wage swings, I have personally worked with numerous travel RNs who have. While there is no exact formula that triggers an audit, you are much more at risk by taking an extremely low rate with high per-diems. Especially if your per-diems exceed your hourly gross.
  8. by   NedRN
    The IRS seldom reveals why a taxpayer is being audited. If they did reveal their algorithms, everyone could avoid audits. As I posted earlier, it could be because you worked for the wrong agency that caused the audit. Individuals can and do make up their own reasons.

    Our industry is being targeted generally as there is widespread non-compliance with tax laws. Similar to how tipped workers were targeted back in the '70s. Google who gets audited and you will see that the IRS spends very little of their ever dimishing budget on taxpayers in our bracket.
  9. by   Indomitable
    Has anyone owed taxes end of year from the "tax-advantage" program?
  10. by   NedRN
    That question is really hard! It is hard to see how you could unless you are audited and they find a problem with your tax home status. Remember that tax free money is tax free money because it is not reported to the IRS. It is technically a "reimbursement", not income subject to tax. But if you or your tax person reports it as taxable on your own, then yes, you will owe extra taxes. Your own fault.

    There could be other errors on the part of the agency or their payroll firm to cause you to pay extra taxes as well. Unknowable, and yes, it does happen. It is more commonly a state tax reporting issue - wrong state - that is the error I hear the most about.