Travel Nursing Versus the IRS: IRS Publication 463

How to avoid trouble with the IRS while you are travel nursing.

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Travel Nursing Versus the IRS: IRS Publication 463

So much false information surrounds travel nursing and the IRS. Some nurses believe they are cheating the IRS by receiving a housing stipend tax-free from their employers and it's only a matter of time before the IRS sends the police to lock them up. Some believe they can only work on an assignment for a year before they must move on. Hogwash! Read on and find the truth.

"IRS Publication 463 Travel, Gift, and Car Expenses" is often quoted by nurses and others as the governing document for travel nurses for what they can deduct and how long they can stay at an assignment. Again, nothing could be further from the truth. IRS publication 463 does not apply to travel nurses that receive a housing stipend from their employers and do not deduct any travel expenses against their W2 income.

If you read the introduction to IRS Publication 463, it states if you are reimbursed by your employer for your travel expenses, IRS Publication 463 does not apply to you. Travel nurses fall into the does-not-apply group.

The IRS is concerned with your W2 income and any deductions you take against your taxable income. If you are not taking deductions against your W2 income for traveling, Publication 463 does not apply. Your travel company is providing you with a housing stipend that is given to you to cover your food and lodging and any travel expense you may incur. If you take the housing stipend AND claim W2 deductions for your travel expenses Publication 463 WILL apply to you. You may also be breaking the law. Seek professional help if this applies to you.

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One great myth that comes from IRS Publication 463 is that you can only stay one year at a travel assignment. Now, this may be an edict from your travel company, but the IRS does not care how long you stay at an assignment unless you take W2 deductions involving your travel assignment. If you take W2 deductions related to your travel nurse job, you have now crossed over into the world that is governed by IRS Publication 463. Note that this doesn't apply to deductions for things like your house mortgage. It's just that you can't both deduct travel expenses AND be reimbursed for them at the same time.

What if your travel expenses exceed what your travel company provides for you? You are certainly able to deduct those expenses, but keep in mind you are now governed by Publication 463. If you are in love with the assignment, you are on, you can only stay one year there if you take travel-nursing-related W2 deductions.

Another falsehood that is passed around in nursing circles is that you can go "tax-exempt" for a few paychecks and the IRS does not care. Oh, they do care. Anyone who tells you that you can go "tax-exempt" for a single or several pay periods, and it will not catch up with you has no understanding of the tax code.

At the end of the year, we all receive a W2 from our employers detailing how much money we earned and how much taxes of varying types were taken out. Nowhere on a W2 statement is a "Tax-Exempt for a Few Pay Periods" exemption. Your total income is reported, and your total federal taxes paid are reported. When you or a tax professional calculates your taxes, if you have not paid enough taxes, you get to pay the difference at the end of the year. You get to pay the difference as one lump sum or you can set up an installment plan with the IRS. If you set up an installment plan, they will also charge you interest on the unpaid tax balance. The IRS can also be unforgiving when they look at your records and realize you owe them money because you just decided to crank up the dependents to '999' for a few months. They even have a term for this – tax fraud. Going tax-exempt for a few pay periods is not looking as great as it once did. This absolute lie has caused so many nurses over the years to have to pay substantial taxes at the end of the year. Do not fall for this falsehood.

I am not a tax lawyer, tax accountant, or even a certified tax preparer; but I have worked as a travel nurse for twelve years and I did not want to wind up dealing with the IRS. Therefore, I researched these topics and found out for myself.

I hope this information helps you make better tax decisions.

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Damon McGill

About Damon McGill, BSN, RN

My name is Damon McGill ([email protected]). I have been an ED and ICU nurse for almost 15 years. I have been traveling for 12 of those years.

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Sure, you can work at an assignment as long as you want, but your tax home shifts after one year and you can no longer legitimately receive tax free stipends from your employer. Yes, the IRS is very interested in these events and catch a fair number of travelers in agency audits alone as well as traveler tax audits initiated for other reasons. That can get very expensive depending on how long lack of a legitimate tax home has been going on. Back tax, interest, and penalties can be a life changing event.

Besides the IRS, several states, most notably California, are very aggressive about tracking down and collecting taxes from those travelers not following tax rules. California doesn't even wait a year per their own rules, but typically travelers following IRS tax home rules beat California's claims in court.

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Specializes in Emergency Room and ICU.

Please read Pub 463. It does not apply to travel nurses. You are taking parts of 463 like “tax home” and applying. It is just not true.

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It applies to agencies. Agency cannot pay tax free stipends to local residents. Obvious, right? Either they can use a non-accountable system where receipts are required for reimbursements, or an accountable system where a tax home is used and GSA tables are used for stipends, no receipts used, nor are the stipends then subject to W-2 reporting.

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Specializes in Emergency Room and ICU.

Agencies are not individual travel nurses. The article is about individual travel nurses. If you take the housing stipend and do not take deductions against your W2 income, PUB 463 does not apply. It even says that in introduction to the publication.

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But tax home rules are applied to travel nurses by their employers to take advantage of not having to keep track of actual expenses. If you want to discuss individual travel nurses, they are also bound by accepting tax free stipends  as having a legitimate tax home that they are working away from. This is the basis of business expenses being reimbursable to employees. 

Again, and obviously, agencies cannot pay local employees these stipends. No one can just take "free money" without being accountable for it's source. And the punishment for accepting the stipends without declaring it as income (if you are not eligible for it) falls on the individual traveler. Ignorance is no defense in an audit. Thus your article has the potential to fatally mislead travelers.

Let's discuss my bona fides. Traveler since 1995, owned my own agency since 2004, employing not only myself, but other travelers. For my agency startup, I had to research IRS regulations in depth, including Pub. 463 and several other pertinent publications to ascertain to myself the definitive answer to several issues, including the basis for paying travelers with non-taxable stipends.

Along the way to 2022, I was one of the founders of PanTravelers, where among other things, I authored a exhaustive history of travel nursing, including the introduction of stipends by the then largest agency, Cross Country, in 1992. It wasn't until after 2000 that this was universally adapted by other agencies, especially larger ones who had more to risk until it became very clear that the IRS accepted this practice.

One of PanTravelers directors is Joseph Smith, widely known as TravelTax and the best known and foremost authority on taxation of travelers. Besides his own tax service, he serves as a consultant to the industry, individual agencies as well as NATHO, the association of travel companies and who wrote their tax policy guidance to individual member agencies. I can assure you there is little daylight between him and me when it comes to actual tax policy and implications for travelers.

While I applaud you for reading the source documents (very few travelers indeed do that), your interpretation is wrong - you are not seeing the big picture. You might do a little reading on TravelTax's site (and read his bona fides - he has also defended a number of travelers in tax audits) or on PanTravelers for more perspective on the subject. Not easy and it took me some time to wrap my own head around it when I was starting my own agency.

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Specializes in Pediatric Critical Care.

You both seem very knowledgeable about the financial implications of travel nursing.  Can either of you speak on the topics of (1) accepting non-taxed housing stipends while not maintaining a permanent residence elsewhere, and/or (2) accepting non-taxed housing stipends while continuing to live at home (for a local contract.)  Something something "50-mile rule?"

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Specializes in Emergency Room and ICU.

The best advice I can give is to ask your travel company, where they are getting their “50-mile-rule” from. I have heard 50, 75, and 100 miles over the years. If they refer to Pub 463, then it is my understanding that as long as you don’t take W2 deductions for travel you are safe. The best advice and the simplest will be read Pub 463 and schedule a meeting with a CPA.

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7 hours ago, Julius Seizure said:

You both seem very knowledgeable about the financial implications of travel nursing.  Can either of you speak on the topics of (1) accepting non-taxed housing stipends while not maintaining a permanent residence elsewhere, and/or (2) accepting non-taxed housing stipends while continuing to live at home (for a local contract.)  Something something "50-mile rule?"

The only IRS 50 mile rule was for permanent moving expenses, but that (minor) itemized deduction is no longer allowed and never had anything to do with working away from home. Some agencies may have an internal 50 mile rule under the (usually) false assumption that you cannot commute that far from home and would have to find closer housing. The issue with all agency guidance is that such minimum policies might well protect them in an audit, it doesn't help the traveler at all in an audit - they still have to conform to IRS rules. (Sometimes mile based rules are because hospitals do not want local travelers, it pollutes their ability to have non-compete area to recruit captive area residents. Agencies do what their clients want.)

So no to both of your questions. The basis for stipends to be non-taxable might be simply explained as replacement expenses that you would not have incurred had you stayed at home. What possible justification could anyone come up with to get tax free compensation versus all the permanent staff who commute just as you do to the same workplace?

The same goes for not maintaining a permanent residence. No replacement costs for having to get remote housing in the vicinity of the travel assignment. In this case you are an itinerant worker and effectively at home wherever you happen to be working.

If the agency won't withhold taxes on your stipends even after informing them you are not eligible for tax free treatment, you can still take them but will have to claim them as income on your tax return. This could flag you for an audit - hassle but you will not have done anything wrong.

Do not listen to agency guidance on how to get around IRS rules. No, you cannot just put your parent's address on your housing form. It will make your agency happy (they save on their share of FICA and can now compete with other agencies on total compensation), but if you are audited with zero proof of costs of maintaining a tax home, that can get very expensive. Don't do it. Yes, lots of travelers do that, and few get caught, but as I mentioned above, an audit could be life changing. Not worth the risk.

Also don't listen to neighborhood tax preparers, rather only trust those who are specialists in travelers. There is a list of them on PanTravelers, none of whom you need to see in person. Typically they also give free phone consults so you can get a straight answer to conflicting agency disinformation. If you want to or need to establish a tax home, I would strongly urge a consult. That is above my pay grade. Nothing wrong with being itinerant either if the costs of maintaining a tax home exceed the stipend tax savings.

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1 hour ago, Damon McGill said:

If they refer to Pub 463, then it is my understanding that as long as you don’t take W2 deductions for travel you are safe.

What is a W-2 deduction? W-2s are employer issued income and withholding tax statements, there are no options for the employee to deduct anything outside their tax return. Perhaps you are referring to double dipping, taking a travel reimbursement untaxed (which means unreported to the IRS) and also itemizing the same travel expenses on their tax return.

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Specializes in Emergency Room and ICU.

Please refer to a CPA

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5 hours ago, Damon McGill said:

Please refer to a CPA

You posted a statement about W-2 deductions which appears to be nonsensical and I asked for clarification. Only you know what you meant, a CPA will not.

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