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:
- 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.”
- 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.
- 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. (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.
You can also contact a tax professional who specializes in working with traveling healthcare providers. Our preferred CPA who works with healthcare travelers is Nermina Culesker at Choice 1 Accounting and Tax. You can set up a consultation with her here if you’d like to discuss your personal tax home situation as a traveler or other travel tax related questions.
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 done personally in the past as travelers. 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 would be to consider house-hacking part of your tax home to help with saving money. 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, or renting out part of your existing home, such as the basement or a bedroom. 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.
Be sure to reach out to a tax professional if you need further guidance on this topic, as we are NOT tax professionals and this is only general information that we have found from professional resources. You can set up a tax home consultation call here with our preferred tax advisor, Nermina Culesker, if you have specific questions about your own tax home situation.
Authors: Travis Kemper, PT, DPT; Jared Casazza, PT, DPT; Whitney Eakin, PT, DPT, ATC – Travel Therapy Mentor