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Travelling Professional Tax Issue - Maintaining a Tax Home

Updated: Dec 17, 2018

Nurse in the neonatal intensive care unit caring for a newborn baby. -
Nurse in the neonatal intensive care unit caring for a newborn baby. -

Many nurses, physical therapists, and other healthcare professionals decide to work for medical staffing agencies instead of hospitals or other medical facilities for a variety of reasons. Some are able to get paid more on an annual basis due to the mobility of being able to extend or move on from a particular contract after three months (or whatever the length of the contract is). Also, healthcare professionals working for staffing agencies, even locally-based ones, usually make more per hour than their full time counterparts. Travelling medical professionals stand to make even more money through the fringe benefits of tax-free lodging and meals & incidentals stipends given by their staffing agencies.

For those in the audience that are not travelling professionals who probably already know this, the IRS considers an employee to be in travel status, or able to receive "per diem" expenses from their employer if they are working at a location that is outside of a 40 mile radius from both their residence and their official duty station (which usually doesn't apply to travel professionals). Also, to receive any kind of per diem, the total duration of the trip needs to be at least 12 hours to receive any per diem and it needs to be over 24 hours to receive the full daily per dim amounts. See IRS - Per Diem Expenses for more detailed information on these standards.

Travelling medical professional contracts in an area that is over this 40 mile limit result in the employee qualifying to receive a certain amount of lodging, meals, and incidental tax-free reimbursement from their staffing agency employer. See the federal government's GSA Per Diem Rates to look up the maximum allowed rates in each metropolitan area in the United States and its territories. There are two main considerations for travel professionals that want to make sure they qualify for these per diem reimbursements: the length of the travel assignments and the maintenance of a tax home. In this article, we will focus on the criteria the IRS has published in how they assess a taxpayer's tax home and how this applies to travelling professionals.

The IRS details the standards used to determine one's tax home in Publication 463 (2017), Travel, Entertainment, Gift, and Car Expenses. There are two tiers of tests the IRS uses to determine one's tax home. The first tier evaluates where the main place of business or work is for the travelling professional is. If a travelling professional has a determined main place of business or work, that is their tax home. If they do not have a main place of business or work, then they move on to the tests on tier two to determine where their tax home is. The following are the items used by the IRS to determine if a taxpayer has a principal place of business or work:

1) The total time spent in each place a taxpayer traveled to

2) The level of business activity in each place a taxpayer traveled to

3) Whether the income from each place is significant or insignificant

There is an example given on Publication 463 and two examples given on Revenue Ruling 73-529 about this standard.

If the answer to the first tier tests is the taxpayer does not have a principal place of business, then the second tier of tests come into effect. The second tier evaluates the following three criteria to determine the taxpayer's tax home:

1) The taxpayer performs part of their business in the area of their main home and use that home for lodging while doing business in the area.

2) The taxpayer has living expenses at their main home that they duplicate because their business requires them to be away from that home.

3) They haven’t abandoned the area in which both their historical place of lodging and their claimed main home are located; they have a member or members of their family living at their main home; or they often use that home for lodging.

If the travelling professional satisfies all three of these conditions, the IRS determines that their tax home is where they regularly live. If they satisfy two out of the three conditions, the IRS indicates that they may have a tax home, depending on all of the circumstances and conditions. If one or zero of the conditions are satisfied, the IRS determines the taxpayer is an itinerant and their tax home if wherever they work. This means that the travelling professional cannot receive tax-free per diem reimbursements and would be liable for taxes on those reimbursements.

How does this apply to travelling professionals? As a Certified Public Accountant (CPA) and member of the American Institute of Certified Public Accountants (AICPA), my tax advisory cannot supplant the counsel given by a tax attorney. I also cannot say what the likelihood a taxpayer will be audited or the likelihood of a negative judgment being assessed on a taxpayer.

That being said, our firm is ready to help and assist travelling professionals comply with the tax laws and ready to provide advisory services to travelling professionals in regards to their tax questions. Please contact us for more information.okay, can you please type in your email or phone number. This way I can have a staff member of the firm get into contact with you.


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