As a Travel Nurse, how do I manage my taxes if I worked in multiple states this year?

Supplemental Health Care does not provide tax, legal or accounting advice. This material has been prepared for general informational purposes only, and is not intended to provide, and should not be relied on, for tax, legal or accounting advice. You are encouraged to consult your own tax, legal and accounting advisors before making any decisions or taking any actions.

Navigating the labyrinth of tax regulations can be daunting for anyone, but for traveling nurses who have worked in multiple states throughout the year, the process can feel especially complex. As these dedicated healthcare professionals crisscross state lines to meet the diverse needs of patients, they inadvertently step into a web of differing tax laws and requirements. In this blog post, we’ll delve into the unique challenges faced by traveling nurses when it comes to tax season, offering insights and tips to help streamline the process and maximize returns. Whether you’re a seasoned traveler or embarking on your first assignment, arming yourself with the right information is key to ensuring a smooth tax filing experience.

Start Here: What To Determine First

• Are you an employee (W-2) or non-employee contractor (1099-NEC)?
• List the states where you lived and worked
• Check to see if those states have a reciprocity agreement (don’t worry, we’ll explain)
• Track expenses and organize receipts
• Get professional help: Don’t do this alone!

Difference Between Employee vs. Non-Employee Contractor

The primary distinction between a W-2 employee and a 1099-NEC non-employee contractor lies in their employment classification and tax responsibilities. A W-2 employee is typically hired by a company to perform specific duties under its direction and control. The employer withholds income taxes, Social Security, and Medicare contributions from the employee’s wages and pays a portion of these taxes on behalf of the employee. Additionally, the employer may provide benefits such as health insurance and paid time off. On the other hand, a 1099-NEC non-employee contractor operates as an independent entity, responsible for managing their own taxes and benefits. Contractors receive compensation without tax withholdings, requiring them to remit taxes directly to the government. They have more control over their work schedule and methods but are not entitled to employee benefits or employer-provided insurance protections. Understanding these differences is crucial for both employers and workers to ensure compliance with tax regulations and labor laws.

Taxes For W-2 Worker

If you're a W-2 employee, your situation may be very straightforward. To know which states you need to report in (in addition to your federal return), review your W-2(s) and look at the bottom in boxes 15-20. There you will find all of the states you worked in for that employer, along with the reportable wages and any income tax already withheld from your paychecks by that employer. You'll need to complete nonresident state income tax returns for any states listed where you aren't a resident. In some cases, you may be due refunds in those states. Upon completing the appropriate state returns, you'll be able to determine your tax due or tax refund in each state. For your home state where you are a resident, file as you normally do, if your home state has an income tax.

Taxes For Non-Employee Contractors

For non-employee contractors, your situation is likely to be more complex. Payers should issue you a Form 1099-NEC to report the amounts they paid you during the year. You will be required to determine which amounts apply to which states. While some states do require amounts to be reported by the payer directly (see boxes 5-7 on your 1099-NEC), many do not, and the 1099-NEC itself is not a foolproof method to determine your state earnings (unlike Form W-2 for employees). You will need to keep records of what was earned, where it was earned, and when. If a payer paid you less than $600 in total during the year, they're not required to report the payments or issue a 1099-NEC. This does not mean you don't have to report the income yourself; you are required to include all business income received on your tax returns and the IRS and state tax authorities perform random audits of contractors to ensure payments are reported. This includes business income received by cash, check, bank transfer, and apps such as Paypal, Venmo, and Cash App. This does not include personal payments received (such as gifts received, reimbursements from friends, etc.). Failure to report amounts received can result in stiff tax penalties, including interest. If the amounts are large enough (the thresholds vary by state), tax authorities can even attempt to prosecute you for tax fraud.

Understanding Multi-State Taxation

If you work in multiple states, it's important to understand that you become subject to the tax laws in each state in which you work, not just the state in which you live. Generally speaking, if you earn income in a state, you have a responsibility to report the income you earned in that state to that state. That doesn't always mean you'll end up paying taxes there (each state has its own thresholds), but you probably need to report there nonetheless. You may even find out that you're due refunds!

It’s also important to find out if a state where you worked has reciprocal agreements with another state. These agreements allow residents who work in one state but live in another to only pay income taxes in their state of residence, rather than in both states. This means that if an individual lives in State A but works in State B, they will only need to file a tax return in State A, where they reside, and not in State B where they work. These agreements simplify tax filing for cross-border workers like traveling nurses and prevent double taxation. However, it's essential for taxpayers to understand the specific terms of these agreements, as they can vary between states and may have exceptions based on certain types of income or residency status. Click here to find out which states have reciprocal agreements.

Track Expenses To Maximize Deductions

For traveling nurses who work as non-employee contractors, diligent expense tracking is critical for effective tax management. Given the nature of their work, which often involves moving between different locations and incurring various expenses along the way, meticulous record-keeping is vital. Tracking expenses such as travel costs, lodging, meals, licensing fees, continuing education, and professional supplies not only ensures accurate reporting come tax time but also helps maximize deductions and minimize tax liabilities. Additionally, maintaining detailed records can provide valuable evidence in case of an audit or tax inquiry, offering reassurance and peace of mind to the traveling nurse. By keeping thorough track of expenses, they can optimize their tax situation and maintain financial compliance.

Get Help: You Won’t Regret It

Getting assistance from a tax professional can be crucial for traveling nurses who work in multiple states due to the complexity of their tax situation. A tax professional can provide valuable guidance on navigating state tax laws, determining residency status, and maximizing deductions and credits. They can also help ensure compliance with tax regulations in each state, minimizing the risk of audits or penalties. With their expertise, traveling nurses can have peace of mind knowing that their tax obligations are being handled correctly and efficiently, allowing them to focus on their essential work of providing care to patients.

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Supplemental Health Care does not provide tax, legal or accounting advice. This material has been prepared for general informational purposes only, and is not intended to provide, and should not be relied on, for tax, legal or accounting advice. You are encouraged to consult your own tax, legal and accounting advisors before making any decisions or taking any actions.