What is a reasonable hourly taxable pay rate for a travel therapist?
This is a question we get quite often, which is understandable. This area of travel healthcare is confusing and certainly not black and white. Pretty much everyone knows that travel therapists earn more than permanent therapists on average. What some therapists don’t realize though is that the reason travelers earn more is due to the stipends (also called per diems) that are offered on travel contracts.
If you’re new to this concept, it’s important to learn the basics about travel therapist pay and how travel pay packages are set up first.
Some travelers who travel without a tax home receive their stipends as fully taxed income, in which case they don’t earn nearly as much as they would otherwise after taxes each week. Travel therapists without a tax home often wonder if it’s actually financially worth it to be a traveler, and in some cases it isn’t depending on the bill rate of the job and the amount the travel companies keeps.
But, the majority of travel therapists do have a tax home, which means that they are eligible to receive their housing, meals, and incidental stipends tax free. This is great and certainly means more take home pay each week. But naturally, many travel therapists when negotiating contracts and looking at their pay packages wonder how much of the money should be received in the form of stipends and how much should be received as hourly taxable pay.
Why Do Travel Therapists Receive Stipends?
The first thing that’s important to understand is why travelers would receive tax free stipends in the first place. Obviously the stipends themselves are for housing, meals, and incidentals while traveling for a contract, but why would they be tax free for some therapists but taxed for others? The reason for this is that if a travel therapist has a tax home that they’re traveling away from temporarily for work, then the IRS doesn’t see it as fair for them to have to pay taxes on money that they’re using for additional expenses that they’re already incurring back home.
This is the same reason that those traveling away from home for business can write off the cost of their lodging, meals, incidentals, and transportation against their business income. For example, think of a pilot or other professional who travels away from home often for work. Those costs had to be incurred as part of the job, and the individual still has all of their fixed costs back at home as well, so they’re not obligated to pay taxes on those travel related costs that are associated with their job.
On the other hand, those travel therapists without a tax home don’t have any costs back home, so there’s no reason for them to be getting a tax break on their lodging, meals, and incidentals since the costs at their “travel job” are the only living costs they’re paying. Once you understand the reasoning, it makes perfect sense, although it can be confusing at first.
Evolution of Taxable Pay Over Time
We can all agree that in most cases, if a therapist can’t earn more money as a traveler, then it doesn’t make much sense to do it. After all, there are certainly cons of travel therapy that can make it a hassle. Packing and moving often, finding temporary housing, getting licensed in various states, and having the risk of a contract being cancelled early are all headaches. Figuring out benefits when working with multiple travel companies is also a concern that permanent therapists don’t have to deal with. Yes the adventure and freedom aspects of being a travel therapist are amazing, but ultimately probably not worth the downsides for most therapists if extra money isn’t involved. Because of this, for clinics to entice therapists to take travel contracts, they have to be willing to pay more for them to offset the cons and risks. Otherwise no one would take the position.
Initially when travel healthcare was new, this meant that a facility would offer a taxable pay rate at or higher than a permanent therapist would make at a comparable job in that location. The stipends were then added on top of that pay rate to cover housing, meals, and incidentals. The stipends weren’t very high because often the facilities couldn’t afford to pay both a high taxable rate and high stipends.
Over time, there are incentives which have gradually shifted more of the travel therapist’s pay toward stipends and less to taxable pay. You see, it benefits the travel therapist, the facility, and the travel company for taxable pay to be lower and stipends to be higher. This is because the taxes you pay as a traveler and the taxes the travel company pays on your behalf (FICA) are both lower when taxable pay is less. That means more money for you each week after taxes and lower expenses for the travel company. The facility benefits as well because they can pay a lower relative bill rate and still be competitive when compared to permanent positions when looking at after tax pay than they’d otherwise be able to. So, these days, travel companies try to offer as low of a taxable hourly rate as possible to the therapist, while offering the highest tax-free stipends possible, to get the highest after tax weekly take home pay for the therapist that the bill rate will allow.
So now you might be wondering, if making the taxable pay as low as possible benefits everyone involved, why not make it really low? Like minimum wage low? Here’s where the IRS enters the chat.
How Low of Taxable Pay is Allowed?
Everyone benefits from a low taxable pay… except for the government. Lower taxable pay means less tax revenue for both federal and state governments. To keep the government from losing out in this travel work arrangement, the IRS has put rules and guidelines in place. One way they’ve done this is to set maximum allowable amounts for housing, meals, and incidental per diems that they adjust based on the cost of living in the area of the job. You can find these maximum amounts on the GSA website. This keeps travel therapists and travel companies from agreeing on unreasonably high tax free stipends on a contract.
For example, if you take a travel therapy contract in a high cost of living city like San Francisco, the allowable stipends (AKA per diems) for a job there will be very high. So, if the bill rate from the facility is high enough, the travel company can pay you a LOT in tax-free stipends. Whereas if you take a travel therapy job in rural Kansas, the allowable per diems will be much lower, so there are restrictions on how much of the bill rate the company can allocate to tax-free stipends.
As most travelers, and the IRS, know though, not all travel jobs have a high enough bill rate to max out those stipends, while keeping the hourly taxable pay in a reasonable range. There is only so much money in the “pot” (the bill rate that the facility is paying) to go around, and it has to be divided accordingly into the taxable hourly rate and the stipends.
If the GSA per diem rates were the only safeguard, then on those lower bill rate contracts, that would mean that a travel company could just pay a traveler minimum wage for their taxable rate, while putting all of the extra money into stipends to max them out. This would save both them and the traveler money on taxes. However, the IRS knows that there are incentives for companies to do this, and if left with no rules they would do this every time. So, guidance was put out by the IRS to stop this from happening. Not paying high enough taxable wages in order to move money into tax free stipends is known as wage recharacterization and is illegal.
Avoiding Wage Recharacterization
So, we want to make as much as possible after taxes as travel therapists. Part of this means paying less in taxes (in addition to working with high paying travel companies and negotiating well) by having higher tax free stipends and a lower taxable hourly rate. But we don’t want to reduce the taxable rate so much that we risk wage recharacterization. So, we have guidelines on the maximum stipends via the GSA website. But, how do we know what is an appropriate hourly taxable wage? How low is too low?
If only it was that easy. If you know anything about the IRS, you should know that nothing is black and white. Unfortunately, there’s no clear answer here. Part of it depends on your discipline (PT, OT, SLP, PTA, COTA, etc). Part of it depends on what a comparable permanent job would pay in that setting and location. Part of it depends on how high the bill rate for the job is, and if your stipends are able to be maxed out or not. Part of it depends on how you, your accountant, and your travel company (likely guided by their lawyers and accountants) interpret wage recharacterization.
The safest bet would be to accept a taxable hourly wage that is the same as the permanent staff is making in the facility where you’ll be working as a traveler, and then just take the remainder as tax free stipends. This would mean much lower take home pay than you’d make with higher tax free stipend amounts, but absolutely no risk of the wages being considered as recharacterized. On the other end of the risk spectrum, you could insist on only taking minimum wage for every contract and get as much as possible in tax free stipends. This would mean a much higher paycheck, but it would put you at serious risk of having to pay taxes and fines if ever audited due to wage recharacterization. I have heard of several therapists doing this over the years. The right decision is probably somewhere in between.
Your taxable hourly wage should be a reasonable amount for the work performed, without being so high that it makes travel therapy no longer worth it. For me, as a traveling physical therapist, I have always chosen to err on the side of caution with a taxable rate in the $20-$30/hour range depending on the contract. My justification for this pay range is that I know some therapists who have taken permanent jobs making that hourly wage in the past, so it’s much easier to justify this rate than it would be accepting minimum wage as a physical therapist. It’s also low enough that my tax free stipends are usually plenty to cover my living expenses (and have extra to put towards savings) while on contract.
What Should You Choose for Your Taxable Pay as a Travel Therapist?
Ultimately, there’s no clear answer here, and the decision is up to you. Choose an amount that you could justify based on the particular contract. If you feel uncomfortable making a decision, then consulting a professional is warranted. I recommend setting up a consultation with a trusted CPA who is knowledgeable on taxes for traveling professionals to get their opinion. 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 taxable pay as a traveler or other travel tax related questions. Having worries of an audit hanging over your head isn’t worth making a little extra each week by cutting corners on how your pay is allocated. Peace of mind is valuable.
If you’re brand new to travel therapy and this was all very confusing to you, then I’d recommend checking out our free Travel Therapy 101 series to learn the basics. If you want more in depth knowledge before jumping into travel therapy to improve your odds of financial success, then our course, Becoming a Financially Successful Travel Therapist is the way to go. If you want help getting connected with great recruiters for your situation, then fill out our recruiter recommendation form to get our top picks based on interviewing hundreds of recruiters over our years as travel therapists.
Written by Jared Casazza, PT, DPT – Jared has been a traveling physical therapist since 2015. He is also a personal finance enthusiast. He has become an expert in the field of travel healthcare through his experience, research, and networking over nearly a decade.