Paying $0 in Federal Taxes and $0 in Student Loans Payments as a Travel Therapist

Written by: Jared Casazza, PT, DPT

Managing student loans as a new grad therapist, or even as a seasoned clinician, is one of the most common concerns that I’ve heard over the last few years. In addition, paying down student loans is also the most common reason that I’ve encountered for why new travelers choose to take travel contracts. Some of my most popular articles of all time on FifthWheelPT have to do with how I’ve chosen to manage my student loans, and this was also the topic of a recent post on this site, Travel Therapy: Paying Off Student Debt… or Not?

Today I want to talk about how it’s possible to pay $0 in federal taxes while also having a $0/month student loan payment while on an income driven repayment plan as a travel therapist. I will ignore state taxes, since this will differ for each individual based on the state in which they work and the state in which they have their tax home. I will also ignore FICA taxes since they are owed every dollar of income earned regardless of income level.

Some of the terminology and ideas in this post may get complex, so if you’re confused, check out the post linked above on Student Loans, as well as some of the links contained in that post for more background info.

Before I start, I do want to say that this is not meant to be personal advice for your individual situation, as I am not a financial advisor or accountant and have no formal training on these topics. This is information that I’ve learned from reading and researching over the past few years and implemented in my own situation, but everyone’s situation is different and tax laws change regularly. If you’re interested in doing anything similar, then do your own research or reach out to a licensed professional for help, as this post is meant for illustration and entertainment purposes only!

Alright, now with that disclaimer out of the way, let’s look at how I would plan to keep my federal taxes and student loan payments both at $0 for the foreseeable future as a full time travel therapist!

Example Situation Information

Let’s say that I’m a 26 year old new grad traveler, single tax filer, without any kids or dependents. I’m a DPT who’s home state and tax home is in Virginia. My primary goal as a travel therapist is to earn and save as much money as possible in order to increase my net worth as quickly as possible, to get to a point where I can transition into either part time work in a single location or taking fewer travel contracts each year to have more free time for family, other hobbies, or leisure travel. To do this, I invest heavily in tax deferred retirement accounts to decrease my tax burden and my student loan payment, which both allow me to save even more for the future. I have student loans of $100,000 with an average interest rate of 6%. After reading more about the various income driven repayment plans, I’ve decided that REPAYE will make the most sense for me financially, and that I plan to eventually qualify for student loan forgiveness. I also understand that half of my accumulated interest is subsidized each month while on the REPAYE plan, so the lower my monthly payment (ideally $0), the lower my effective interest rate will be!

Income, Taxes, and Student Loan Payment

As a traveler, I work about 48 weeks per year while spending a month at home each year as a vacation and to spend time with family and friends. My taxable pay on contract is $21/hour, with tax free stipends received for lodging, meals, and incidentals while on assignment traveling. In this situation, assuming I work 40 hours each week, my yearly taxable pay would equal $40,320. (21 x 40 x 48 = 40,320) The 40 hours a week is a safe assumption since I always make sure to have a 40 hour guarantee in my travel contracts (as we recommend that other travelers do)!

If I were to not try to optimize this situation at all, I would have a federal tax bill of approximately $3,208 for the tax year of 2018. I would also have a monthly student loan payment of $184, which is equal to $2,208 for the year. That’s definitely not bad but I want to do better. I’d rather keep that $5,416 in my own retirement accounts to grow and improve my net worth! Below are pictures of both the taxes and the student loan payment for this scenario. The student loan table was generated using the federal student loan website’s repayment estimator and the tax chart was generated using SmartAsset.com.

student loan repayment initial.png

income taxes initial.png

Optimized Scenario

The key to paying less in taxes and having a lower monthly income driven student loan payments lies in reducing your Adjusted Gross Income (AGI). One of the easiest ways to do this is to contribute to tax deferred accounts such as a traditional 401k, a traditional IRA, or a Health Savings Account (HSA). These accounts are very advantageous because not only do they reduce your tax liability, they also benefit you in the future through the money growing in the accounts over time (provided the money is invested wisely). For my purposes, I want my AGI to be low enough that I don’t owe anything in federal taxes and I have a student loan payment of $0. However, the two numbers to achieve these goals are unlikely to be the same, so this takes some research on my part.

In 2018, the standard deduction is $12,000, which means that any income up to that amount is taxed at 0%. but you can actually go higher than this amount before owing any money in federal taxes. In my situation in this optimized scenario, by contributing to retirement accounts, I also qualify for the saver’s credit. This means that as long as I contribute at least $2,000 to a retirement account and have an AGI below $19,250. I get a $1,000 tax credit that will completely wipe out any federal taxes owed at that income level. As far as federal taxes for a single traveler without kids who contributes at least $2,000 to retirement accounts are concerned, $19,250 is the sweet spot to owe nothing. This is assuming that no other deductions or credits are available to be claimed, which in the scenario above would be true.

To have a student loan payment of $0, $19,250 is a little too high and will still lead to me having a $10/month payment. That definitely isn’t bad at all, but I can do better while only contributing a little more to the tax deferred accounts mentioned above. After playing around with the repayment estimator, I find that to have a $0 student loan payment on the REPAYE plan, the highest AGI that I can have is $18,809.

student loan repayment $0

This means that if I’m able to reduce my AGI from $40,320 down to exactly $18,809, I will achieve my goal of paying $0 in federal income taxes while also having a $0 student loan payment!

Implementation

Reducing your AGI by almost $22,000 may sound difficult, or even crazy. For most people who make only $40,000/year, that would probably be the case. However, travelers are different.

Since we receive tax free stipends which usually cover most, if not all, of our living expenses, living on a taxable income of $18,809/year isn’t nearly as hard. In fact, my girlfriend Whitney and I have each lived on much less than this each year since we began traveling, and we have met and mentored dozens if not hundreds of others that do as well. If you live an expensive lifestyle in a high cost of living area, then this might not be possible for you. But if your primary goal is to keep as much of your money as possible, while saving and investing for the future by living a modest lifestyle to achieve financial independence as quickly as possible, then this is 100% doable!

Implementing this strategy is fairly straight forward. Utilizing the tax deferred accounts mentioned above, I would need to contribute $21,511 to reach the $18,809 AGI amount talked about above. Here’s the course of action that I would take:

Since an HSA is an extremely valuable account to save for future medical expenses, or even to use as an extra retirement account, that is the first account that I would want to contribute to. I choose to utilize a high deductible health insurance plan through my travel company specifically to have access to this amazing account! The contribution limit for a HSA for a single individual is $3,450 for 2018. So I would contribute the full $3,450. ($21,511 – $3,450 = $18,061 still to contribute).

The next $5,500 (the contribution limit for IRAs in 2018) would go into a traditional IRA account. I prefer maxing out an IRA before a 401k due to the increased number of investment options available in the IRA compared to a 401k. Having more options for where to put the money will ultimately mean lower fees paid and more money in retirement. ($18,061 – $5,500 = $12,561 still to contribute).

At this point, I would have $12,561 left that I would put into the 401k plan offered by my travel company. I refuse to work with any travel company that doesn’t offer a 401k because of how valuable I find being able to contribute to these tax deferred accounts to be. A 401k has the largest limit of the accounts talked about above at $18,500 for 2018. I wouldn’t even need to max out the 401k completely since contributing just the $12,561 would get me to my goal, but if my income happened to be higher for some reason (possibly working overtime on a contract, or having other sources of income) then there would still be some wiggle room to contribute more and still achieve the magic AGI amount of $18,809.

Conclusion

As a traveler, it’s possible to have both a $0 federal tax bill and simultaneously have a $0 income driven student loan payment. Subsequently, this will allow the traveler to utilize the money saved to invest for the future and possibly achieve financial independence more quickly.

The key to achieving this is the traveler reducing his/her AGI by contributing to tax deferred accounts (401, traditional IRA, HSA). The magic AGI needed in the scenario above to reach this goal is $18,809, with anything below that amount being unnecessary. In the scenario above, using this strategy and putting the $21,511 needed into the tax deferred accounts would save the individual $5,416 between federal taxes and student loan payments, which is a 25% savings on the amount put into the accounts in the year contributed! Instead of that money being paid to the federal government and the student loan servicer, it would be invested and subsequently compounding tax-deferred over the years.

Being able to do this is relatively unique to travelers, since many of our expenses are reimbursed tax free while traveling, making living on the much lower AGI completely feasible; whereas, someone without the tax free stipends may struggle. Whitney, Travis, and I here at Travel Therapy Mentor have all taken advantage of tax deferred accounts to reduce our tax burdens while traveling, which we believe is a smart way to not only save money on taxes but also to set yourself up for a financially comfortable future!

Thanks for reading and making it through all of that! Do you take advantage of tax deferred accounts to reduce your income taxes and student loan payment while traveling? Let us know in the comments below! Reach out to us with any questions or for clarification on anything mentioned above. If you’re getting started with travel therapy and you need help finding a good recruiter/travel company, then send us a message to get our recommendations!

To Extend, or Not To Extend a Travel Therapy Contract?

Written by Travis Kemper, PT, DPT

Should I stay or should I go now?

How do you know when to extend a contract or when to move on? There is no definitive answer to this.

My fiancée Julia and I have extended contracts anywhere from 2 weeks in order to better accommodate our travel plans, to a full thirteen weeks at one contract. In general, we have found that we are usually ready to move on at the thirteen week point whether we extended or not. In all cases of extensions, we have been persuaded to stay partially by the facility having a desperate need for PT coverage.

In the future, we will only extend if it is in our best interest, and we will always ask for an increase in pay with an extension. Thus far we have gotten up to $200 net per week bonus pay with an extension.

Know Your Preferences

An extension is always a personal decision, and you need to know yourself. Many times a facility will approach you very early in the contract for an extension, so you need to understand your own preferences.

If you are like us, you may get an itch to leave starting about 10-12 weeks in. Extending causes that itch continue for the entire extension period.

However, many travelers, such as Jared and Whitney,  find they would rather do 4-6 month contracts, or even up to 1 year so they can get comfortable with the position and location before they move on, as well as earn guaranteed money and not have to deal with the hassle of moving. If that is you, extending can be a great way to earn some more money and have a little more stability in your life.

Signs That The Facility May Want an Extension

Sometimes you can get a feel during the interview if the facility is the type to want a traveler to extend or not. You can also sometimes get a feel for whether they are likely to keep you for the duration of your contract or if there’s a possibility your contract could get cut short.

If you can find out the reason why they need a traveler in the first place, that will give you a good idea. For example, maybe it’s a rural area and they have been using travelers back to back for a year or more. In that case, there’s a good chance you could stay there longer if you wanted to. Or maybe it’s not a rural area, and they’re still using travelers back to back and can’t find a permanent employee. Maybe then you should be hunting for reasons why they can’t keep permanent staff.

On the other hand, if someone just quit and they are rapidly trying to find a permanent employee and conducting permanent interviews, there’s a chance they might cut your contract the first chance they get when someone permanent is hired. This also might not be an ideal situation for you, especially if you are traveling a long way to take the job.

It’s a good idea to feel out these things early on, as it can definitely give you a good indication of what type of situation you’re getting into as a traveler. But, don’t always fear the rotating-traveler, begging for you to extend facilities. They’re not all bad, and you could have a great experience there and want to extend.

Do you have questions about contract extensions? Send us a message and we can chat! Want to tell us about an experience you had with a contract extension? Leave a comment below!

Opportunity Cost: Passing on a Travel Job and Having Unplanned Time Off

Written by Travis Kemper, PT, DPT

What is Opportunity Cost?

Opportunity cost is an important economic term that most of us rarely think about. An opportunity cost is quite simply a lost benefit from choosing one option instead of another.

Opportunity Cost and Travel Therapy

Why is this important and what does it have to do with travel therapy? We’ve seen a number of travelers post about a potential job opportunity that they were passing on due to the pay being too low for them by $100 or $200 per week. They say if the pay was higher they would take the position because everything else sounded great!

So let’s analyze the opportunity cost of passing on a position without a replacement position readily available:

  • John is a new grad traveler and receives an offer of $1500 per week that starts 10/1.  John turns down the position, stating that his minimum acceptable pay is $1650 per week because he wants to pay down his loans as fast as possible.  Good news, John finds a position paying $1650 per week that starts just 2 weeks later on 10/15, and he takes this position.
  • Sally also is traveling with the goal of paying down her loans quickly.  Sally takes the position for $1500 per week and starts 10/1.

Who makes out better financially?

  • Sally makes $1500 x 13 weeks= $19,500 net pay, 13 weeks after 10/1
  • John took 2 weeks off waiting for that bigger paycheck. 13 weeks after 13/1, John earns $1650 X 11= $18,150.

The opportunity cost for John is $19,500 – $18,150 = $1,350 in lost income, due to waiting for the higher paying position.

Conclusion

The moral of the story is that higher pay isn’t always higher pay if you have to wait to start. This is a very simplistic example, but as you can see, continually passing on “low pay” will hurt you financially in the long term if you take extra, unplanned time off.

We recommend you take the right job instead. Pay is important, but sometimes the highest paying positions can also be the least desirable positions.

If you have questions about a travel therapy position, pay packages, or need help in your travel therapy journey, please shoot us a message and we would be happy to help!

How to Find a Travel Therapy Company and Recruiter

Written by Travis Kemper, PT, DPT

The Importance of a Good Recruiter and Company

Your position is only as good as your company, and your company is only as good as your recruiter. We never want to fight over money, we want at least acceptable benefits, and we want a company that stands behind their travelers. At the end of the day, we are the talent, and they should want to keep us on their team by treating us right.

Don’t Make the Same Mistake

The biggest mistake my fiancée and I made early in the process was requesting more information from Allied Travel Career’s website. The calls, texts, and emails still haven’t stopped years later. When we did find recruiters that we liked and trusted, they disappeared (sometimes mysteriously), got promoted, or changed companies. Recruiters are in the sales business, and sales is a field with very high turnover. You are going to want recruiters that are in it for the long haul, are honest, and actually listen to your wishes.

The company is important as well.  Preferably they take care of your recruiter and you throughout your career as a traveler. Glassdoor.com and indeed.com are good places to start that can provide you employee reviews on just about any company you can think of.

A Few Considerations in Choosing A Recruiter

  • How long have they been with the company?
  • How many travelers are on their caseload?
  • Do they respond quickly to your calls, texts, emails?
  • Does the recruiter seem honest and transparent with you, or are they being shady and withholding information?

A Few Considerations in Choosing a Company

  • Look at their benefits package and make sure it meets your needs
    • Are you eligible for 401k, and if so when? Do they offer a company match?  What is the vesting schedule?
    • When does insurance coverage start, day 1 or day 30?
  • See if they offer any bonuses such as travel reimbursements, referral bonuses, overtime bonuses, contract extension bonuses, etc.
  • Do they offer 40 hour guarantees for contracts?
  • Do they cover costs of licensing, credentialing, and continuing education?

Picking the Right Company and Recruiter for You

There is a lot to take into account when choosing the best travel therapy company and recruiter. We definitely recommend working with 2-3 companies at a time to give yourself the most options when searching for a travel contract.

If you don’t want to go through the process of combing through the hundreds of companies and thousands of recruiters yourself, send us a message and we will send you to our most trusted recruiters!

Why Choose Travel Therapy?

Written by Travis Kemper, PT, DPT

My “Why” For Travel Therapy

Everyone’s “why” will be very personal and may be very different. My fiancée Julia and I are traveling for the freedom it provides. We enjoy not being tied down to one geographic location and not being obligated to work 50 weeks per year. There are too many things we want to do with our lives to settle down in a permanent position.

We want to travel, not for 2 weeks each year, but long enough to immerse ourselves in the culture of a new place. We would someday like to do international mission trips as well where we can use our skills and training to help others that have tougher challenges and decreased access to appropriate healthcare.

What’s Your “Why”?

You don’t have to want the same things I want, but you should know your why. Maybe it’s to travel, maybe it’s to pay student loans off, maybe it’s for financial independence. It could be that you completed 3-4 internships and have no idea what setting you want to practice in because your profession has too many awesome options (I can relate to this)! Maybe you’re burnt out in your current position and need a change of scenery.

Whatever your why is, you hopefully take it into consideration before embarking on a traveling or permanent career decision.  Your why can, and hopefully will, change as you grow as a person, but your why can always provide you with direction in your career and life.

So, what is your “why” for considering travel therapy? Shoot us a message or leave a comment below. We’d be happy to help you get started on your journey to pursuing travel therapy today.

Travel Therapy: What is a “Tax Home”?

Authors: Travis Kemper, PT, DPT; Jared Casazza, PT, DPT; Whitney Eakin, PT, DPT, ATC

What is a Tax Home?

If you are just starting out in travel therapy you may not be familiar with the concept of a “tax home.”  Basically, a tax home is your primary residence, where you live and/or work. When you’re working as a travel therapist, having a tax home allows you to take housing and per diem stipends provided by travel therapy companies without having to pay taxes on them due to the stipends being a reimbursement for costs incurred at the travel assignment location.

This is a major benefit for you and greatly increases your potential total compensation, if housing costs are kept at a reasonable amount, when compared to a permanent job, where all your income is taxed. This is the main reason why “take-home” pay (otherwise known as your after-tax pay, the money that actually goes into your bank account) as a traveler is higher than pay in permanent jobs.

But, maintaining a proper tax home is a little more complicated than just saying you “have” a permanent residence.

The Basics of Maintaining a Tax Home

To be allowed to take the untaxed stipends, per IRS guidelines, you need to be able to demonstrate at least two of the following three criteria:

  1. You must maintain a place of permanent residence and pay expenses there (i.e. rent, own/mortgage, pay bills, pay taxes, etc.) while ALSO paying expenses at your travel location. This is called “duplicating expenses.”
  2. You must not abandon your tax home. Generally speaking, you should return there at least 30 days per year but these days don’t have to be consecutive.
  3. You must still conduct business in the area of your tax home. For example, you have a PRN job there or maintain some type of other business there.

The third criteria is a little vague, as some interpret “conducting business” as having bank accounts and credit cards, car registration and insurance, and voter registration associated with the tax home, not specifically working in the area.

Without meeting at least 2/3 of these requirements, you would be considered an “itinerant worker,” and all of your income will be taxed.

There is nothing wrong with having all of your income taxed, and you may still come out ahead this way as compared with a regular, permanent job. But, we like to keep as much of our money as possible, so qualifying for the tax free stipends is ideal provided that maintaining your tax home isn’t so expensive that it negates the benefit.

To find out more about tax homes and all things about travel taxes, we recommend you check out the website TravelTax.com/traveler.html. (Specifically, scroll down to the section “how to keep a tax home”). This is a wonderful website where we have all learned a significant amount over the years.

What Are Some Strategies to Keeping a Tax Home?

Of course if you already own a home/have a mortgage, or rent an apartment, these can be maintained as your tax home. But this method can be more costly and also more complicated since you may not have someone to look after your place while you’re away. You may be thinking you could rent out your house while you are gone, but this is not advisable unless you specifically state in the lease agreement that you would maintain at least one room in the house as your own and you stay in that room while in the area (at least 30 days per year as mentioned above).

Perhaps a better option is renting a room out from your parents or a friend, which in our opinion is great way to maintain your tax home. Go on Craigslist, see what a comparable room rents for, and pay your family/friend to rent the room in their house. It’s also recommended that you have a contract written and signed. They will have to claim it as income on their tax returns, but they can keep the extra income to help around the home. That is the simplest way, and that is what we have been doing since starting to travel. As mentioned by Joseph Smith at Travel Tax, you ideally would also want to work in this new area for a while before traveling in order to solidify this new area as your tax home.

A more unique strategy that Julia and I are considering doing next year is house hacking for our tax home. House hacking is simply performed by purchasing a multi-unit home (duplex, triplex, quadplex), and renting out the other units, while you live in one unit.  Your tenants can effectively pay your rent and pay down your mortgage at the same time, enabling you to live for free or dramatically reducing your housing costs. You can find more information on house hacking here.

Do you have a different creative way of keeping a tax home? Do you have questions about tax homes? Send us a message and we can chat!