Taxable Pay as a Travel Therapist

December 22, 2022April 4, 2023 ~ Travel Therapy Mentor ~ 1 Comment

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.

To learn more about travel pay when traveling with vs. without a tax home, check out this article and this video.

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.

Again, if all of this is very confusing to you, it’s best to start by learning the basics of travel therapist pay here and here.

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.

Pursuing Travel Therapy Without a Tax Home

December 7, 2022April 4, 2023 ~ Travel Therapy Mentor ~ 1 Comment

Is it possible and/or worth it to pursue travel therapy without a tax home? This a question we’ve been getting increasingly often lately. The answer can be complicated and of course depends on each traveler’s specific situation. You certainly can take travel therapy contracts without a tax home, but it’s often not the best move financially depending on the type of travel therapist you want to be. There are really two different situations in which a travel therapist may be considering traveling without a tax home, and I’ll cover each of them in this article so that you can gain some insight on if travel therapy without a tax home is a possibility for you.

Travel Therapy Tax Home Background

In order to be eligible to receive tax free stipends as part of your compensation package as a travel therapist, you need to maintain a tax home. Since the tax free stipends are a large part of why travel therapy is so lucrative, understanding this before beginning your travel therapy journey is vital. If you’re completely unfamiliar with what a tax home is and how to establish a tax home, then read this tax home article for a full explanation.

Essentially though, having a tax home almost always involves duplicating living expenses. Because paying for living expenses in both your home location and at your travel contract location can be costly, many new travel therapists look for ways to get around doing this, especially if maximizing finances is a priority.

When Whitney and I started traveling as new grad PTs in 2015, my goal was to reach financial independence as quickly as possible, so trying to minimize my costs for housing was something I spent a lot of time researching. While I ultimately decided on other ways to reduce expenses while still maintaining a tax home and duplicating expenses (i.e. lower rent at my tax home location and travel contract location), I did look into what it would be like to travel without a tax home. Below are some considerations and scenarios for who this might work for.

Local Travel Therapy Contracts

The first type of potential travel therapist usually asking about taking travel contracts without a tax home are those planning to take local travel contracts, commuting from where they live, just in one city or region. Local contracts may or may not be possible depending on how specific your needs are in terms of setting and the location where you live. You can learn more about that in this article.

Often these are people who have heard about the much higher pay that travel therapists earn and are burnt out on their current job, looking to take shorter term contracts in their area, and have the flexibility of contract work at various locations instead of a perm job. But, they don’t want to, or can’t, move for one reason or another. Often not wanting or being able to to move for traditional travel contracts is due to family or social obligations near their home. They think they’ll get the best of both worlds by taking travel contracts within driving distance of their home to make more money and have the perk of flexibility as well as the other benefits that come with being a travel therapist, all while not actually having to move.

Local Contract Implications and Pay

Unfortunately in this situation, the travel therapist won’t be eligible for tax free stipends due to not duplicating expenses. If you’re commuting to a contract job from your home address, then there’s no reason for the IRS to allow the stipends you receive to be tax free, since you aren’t actually incurring additional expenses by “traveling” to that job. So as a local travel therapist, you won’t be eligible for tax free stipends, but does that mean that it isn’t worth it? Well, that depends on what you would make at a normal permanent job in that area, how good your benefits would be at a permanent job, and how well the local travel job is paying.

Most local travel therapists can expect to make a similar rate to that of a PRN job. The average range of pay for a local travel travel contract (for PT/OT/SLP) is between $45-$60/hour. We have seen some pay higher but this is usually in rare circumstances. Where your local contract pay will fall in that range will depend on the setting and location of the contract, as well as how desperate the facility is to get a therapist in there quickly.

Pros and Cons of Local Travel Contracts

So now that we know the normal pay range of a local travel contract, it’s important to look at some of the pros and cons to determine if it’s worth it.

The two biggest pros of taking a local contract are higher pay than a permanent job, but with more consistency than most PRN jobs. After all, if the pay is similar to a PRN job, then why not just take a PRN job close to home? With a local travel job, there are often guaranteed, full time hours included in the contract, whereas with a normal PRN job, hours can be inconsistent. In most cases, a local travel contract will include at least a 32 hour guarantee, but sometimes even 40 hours. That means PRN pay but with full time hours which can be pretty lucrative.

In addition to the pay and consistent hours, you’ll also have the option of receiving benefits similar to a permanent job via the travel staffing agency, which you normally wouldn’t receive with a PRN job. Plus, by taking temporary travel contracts, you get the flexibility that travelers have, like switching jobs often if you want more variety or don’t like the facility, and taking longer periods off between contracts that you may not be able to do with a permanent or PRN job.

There are also some cons to taking a local travel contract. The biggest one is that your options will often be very limited (or potentially nonexistent) in most areas of the country, which makes finding a good facility and having consistent work year round difficult. This is obvious, but if there aren’t any facilities near you looking for a travel therapist, then there won’t be any local travel contracts available to you, unless you’re willing to think outside the box and contact places without listings to see if they would potentially be interested in hiring you on a short term contract basis.

Another con of local travel contracts is that you won’t receive all of the same benefits that you would at a permanent job. Vacation time and sick days don’t exist on travel contracts, so you’ll have to account for that with your own savings when you want or need time off.

Lastly, it’s much more likely that you’ll lose your job when taking a local travel contract than with a permanent or PRN job. This is due to the fact that it costs the facility more money to have you there as a traveler/contractor, which means that they’re almost always looking to replace your position with someone willing to work there permanently at a lower rate.

One final consideration, which may be a pro or a con depending on your lifestyle, is that a local travel job is only temporary and is usually only three months long. For some this is a deal breaker since they need consistent work throughout the year, whereas for others it’s a good thing because then you’re a free agent again to explore other options or take time off once the contract ends.

Travel The Country Without a Permanent Home

The other type of potential travel therapist who would be considering traveling without a tax home is someone who doesn’t want to keep a permanent home location and would prefer to be a nomad just moving from travel contract to travel contract. This might be someone who just graduated and doesn’t really have their own home aside from keeping a few things at their family’s home (but not wanting to deal with the tax headaches of establishing this as an official tax home), or someone who has been working and living on their own, but wants to sell their house or get rid of their lease and travel full time. In IRS lingo, this is called being an itinerant worker. In this situation, since you wouldn’t have a tax home, you also wouldn’t be eligible for tax free stipends due to not duplicating expenses. That doesn’t necessarily make it not worth it though. Even though your stipends will be taxed like with the local travel example above, not having to pay for any housing expenses back home can save you quite a bit of money.

Having your stipends taxed means less take home pay for you as an itinerant travel therapist for a couple of reasons. The obvious reason is that instead of receiving a large portion of your pay tax free, you now owe federal, state, and FICA taxes on all of the money you receive. The other reason that many travel therapists don’t consider when thinking about pursuing travel therapy without a tax home is that the travel company will also have additional taxes and expenses to pay on your behalf, which reduces how much they’re able to pay you. The travel company is responsible for paying FICA taxes on your behalf based on your taxable pay, which is higher as an itinerant travel therapist, and worker’s compensation insurance is also higher for them when your taxable pay is more.

All of that means that you’ll earn significantly less in after-tax dollars when working as a travel therapist without a tax home than you would as a regular travel therapist. How much less? Again this will depend on a variety of factors including: the bill rate of the travel contract (largely impacted by the setting, location, and demand for the job), the amount the travel company keeps for their overhead, and how much you earn in total throughout the year since tax brackets are marginal (including states taxes) meaning higher income earners pay a higher percentage.

Pay Difference When Traveling Without a Tax Home

The average weekly take home pay range for a travel therapist working as an itinerant worker is $1,200-$1,600/week. To compare, the average weekly take home pay range for a travel therapist traveling with a tax home is about $1,650-$1,900/week. This means that when traveling as an itinerant worker, you can usually expect to make about $300-$400/week less after taxes than you would if taking the same jobs while maintaining a tax home and receiving the tax-free stipends. That comes out to about $1,500/month less. Is that worth it to not have to worry about maintaining a tax home and duplicating expenses back home? Well, that depends on how much it would cost you in expenses back home and the hassles involved in your particular situation.

If you’re from a low cost of living area like Whitney and me, maintaining a tax home can pretty inexpensive, so we’d come out way behind if we chose to travel as itinerant workers. Our costs back home while on assignment have usually been $700/month each or less depending on if we were renting a room (which we did for the first 5 years or so of our travel careers) or house hacking a portion of our townhouse (which we do now). For others in very high cost of living areas, that may not be the case though, and you could really break even or come out ahead by not having expenses back home, plus skip out on the hassles of maintaining the tax home.

Other Considerations

If you look at your own situation and determine that travel therapy without a tax home would be a good choice for you financially, then there are a few other things to consider.

Where will you go between contracts or if you’re unable to find a contract for a few weeks?

If you don’t maintain a tax home then you’ll be paying for short term housing or relying on friends and family for a place to stay between contracts. For some this is fine, for others it may not be.

Where will your mail go?

Most travelers have all of their mail go to their tax home and either forward it temporarily, go back to check it intermittently, or have someone at the home location help with the mail. Without a tax home, you may be changing your mailing address regularly which could be a hassle, or you’d have to look into alternative mail solutions.

Where will you register your car, setup you insurance, get a driver’s license, get a bank account, etc.?

Without a permanent address, deciding what to do about all of your accounts can be difficult. Changing your address for everything each time you move to a new contract is complicated and can lead to issues.

Is Travel Therapy Without a Tax Home Worth it?

As you can see, there is no one size fits all answer here just like with most things in life. For most it will make more sense to maintain a tax home while traveling both financially and logistically to have a place to go back to between contracts and maintain your permanent ties. For some, working as an itinerant worker is the right choice, whether you’re taking local contracts while commuting from home, or want to be a nomad without a permanent residence. The most important thing is to be aware of all of the differences and to make an informed decision.

I hope this was helpful in guiding you on some decision making regarding tax homes as a travel therapist. If you have detailed questions about your own personal tax home situation, we highly recommend contacting a tax professional (NOT us) for the best advice. 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.

If you have general questions we can help you with, please feel free to send us a message. If you need help getting started with travel therapy, we have a lot of resources on our website that will be very helpful. And if you need travel therapy recruiter recommendations, fill out this form and we will get you connected!