What is a Tax Home and Why is it Important for Travel Therapists?
In general, a Tax Home is usually your place of primary residence, but it has more to do with the place where you primarily “maintain business” and earn income, by the IRS definition.
- The IRS defines a Tax Home as: “the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.” (source: IRS)
The reason determining your tax home as a traveling therapist is important is because it has to do with the way that your income is taxed by the IRS while working travel assignments.
It’s a very important concept to understand, and most travel therapists will want to make sure they are meeting the requirements for maintaining a proper tax home per the IRS guidelines, so they can receive tax-free stipends for housing, meals and incidentals when away at travel therapy contracts. Receiving these tax-free stipends is part of what makes Travel Therapy Pay so lucrative, because your after-tax pay is significantly higher than it would be at a normal job.
So let’s dig in a little more to better understand what a Tax Home is and how you can make sure you meet the requirements in order to receive tax free stipends!
How Pay is Taxed as a Travel Therapist
Normally, if you work at a regular, permanent job as a W-2 staff employee, or as a PRN employee, all of your pay is taxed. You will receive a flat hourly rate or salary, and taxes will come out of each paycheck on all of it.
As a travel therapist, if you qualify, you will receive an hourly pay which is taxed, and in addition you will receive a stipend or “per diem” for housing, meals, and incidentals to help cover your expenses while you travel away from home to go work in the travel location, and this stipend is not taxed.
- You can learn more about how the pay is structured in our Travel Therapy Pay 101 article.
The reason why you could receive these stipends/per diems untaxed is because, you should be maintaining a permanent residence which will be considered your Tax Home, where you regularly return to, continue to have financial obligations, and continue to carry on business. Because you have financial obligations (including rent/mortgage, utilities, maintenance, and other bills) at your primary residence, the IRS may give you a “tax break” on some of the expenses you have at your second work location, the place where you are temporarily traveling away from your tax home to go and work, aka your travel therapy job assignment!
If you’re not meeting these requirements, and you do not maintain a proper Tax Home, but instead you’re just a “gypsy” (aka an “itinerant worker”) who travels around from place to place for work, then there is no reason for the IRS to give you a tax break on your income and stipends. In this case, you would be taxed on all of your pay at the travel contract, just like it was a normal, permanent job.
Tax Home Requirements
There are some guidelines to follow to be sure you’re meeting the requirements for maintaining your Tax Home, so that you can qualify for the tax free stipends (and keep more of your paycheck instead of getting it taken away in taxes)!
You must meet at least 2 out of 3 of the following requirements to be maintaining a proper Tax Home (Source: TravelTax)
- Have regular business (employment) in that area.
- Have a permanent residence (physical residence) at your tax home (metro area where you last worked) and are financially responsible for that residence’s upkeep (rent/mortgage/taxes/repairs) while you are away from home.
- You have not abandoned your tax home (plan on returning and spend around 30 days a year there).
We encourage you to visit TravelTax.com and IRS.gov to learn more about these requirements. If you have specific questions about your own taxes and Tax Home situation, we highly recommend contacting a tax professional such as those at Travel Tax!
Do Your Research!
We can’t stress enough that it is your responsibility as a travel therapist to do your research about Tax Homes and make sure you’re meeting the requirements! Do NOT rely on recruiters to tell you whether you are or are not meeting the requirements. And do NOT accept a travel contract where they are giving you tax-free stipends unless you have made sure that you qualify!
If you accept tax-free stipends as a traveler and you were ever audited by the IRS, it is 100% YOUR responsibility to prove that you were maintaining a Tax Home and that you qualified for the tax-free income. If you cannot provide this proof, you will owe back taxes on all of the stipends and may also incur penalties and fees.
- To learn more on this topic, read this article that goes into greater detail about Tax Homes.
Bottom Line about Tax Homes
As a Travel Therapist, as long as you are maintaining a Tax Home where you have expenses, conduct business, and return to often/between contracts, you may qualify to receive tax-free stipends on your travel contracts. Receiving the stipends tax free is a huge perk and allows you to make much higher after-tax income compared to those working permanent jobs! But it’s vital that you do your research to make sure you’re following the rules in order to avoid owing back taxes and fees if you get audited by the IRS in the future!
We hope this was helpful in understanding a little more about Tax Homes and why it’s an important concept for travel therapists! 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 (linked above).
If you have not already, be sure to check out the other articles and videos for our Travel Therapy 101 Series in order to learn all the basics about getting started with travel therapy!
Please contact us if you have questions for us, or fill out this form if you would like recommendations for travel therapy recruiters and staffing companies to get started on your own travel therapy journey!
Written by Traveling Physical Therapist Whitney Eakin, PT, DPT, ATC