When the right traveler is placed on the right unit, a true connection is made. The manager wants the traveler to stay forever and vice versa. But after a 13-week contract and three extensions, the traveler tells the facility they cannot extend again. Why?
Traveler’s income often includes a combination of taxable and non-taxable income. This creates more complicated rules with the IRS on how things need to be claimed. Let’s check out how travelers are paid and how their taxes differ from a W2 employee.
Travelers earn, what we call, a pay package every week which is different from the traditional paycheck which is entirely taxable. A pay package includes taxable and tax free parts. This is a big draw that brings people to travel. Pay packages are all built differently contingent on several different factors. They typically include a lower base salary (which is taxable) and stipends which cover housing, a meal allowance, car, travel expenses, etc. These stipends are tax free as they are typically paid as reimbursements.
Tax Free Income
Interesting enough, not everyone can qualify for tax free income. The IRS states a traveler must have a permanent residence that incurs expenses in order to qualify for tax free money. They call this a “tax home”. A traveler’s tax home can be a house where they pay a mortgage or an apartment where they pay rent. The travelers must also pay utilities at this address along with other house related bills. Also, they must have some sort of legal tie to this address such as a driver’s license in your home state, a permanent mailing address, and voter registration in your home state, etc.
Fun facts about a tax home:
– A traveler cannot rent their tax home while they travel. This will disqualify them from getting tax free money.
– A tax home cannot be a family or friends home. A traveler must be able to prove they contribute to the monthly expenses.
One Year Rule
So why can’t a traveler stay at one assignment for longer than a year? Technically, they can. But if they do, they would lose their option for tax free income. When someone lives in a state for longer than one year, they become a resident and hence abandoning their tax home. Staying on an assignment for longer than one year would start to raise red flags with the IRS.
There are two options you have when a traveler you love is getting close to their 364th day. First, would be to hire that traveler on permanently. Any traveler on assignment is eligible to be hired on as your full time staff. The second option is for that traveler to give up their tax free money. This is the tougher of the two options but if the traveler loves the assignment, they are more willing to take this option.
Amelia is a Christmas baby hailing from the state that brings us Husker Saturdays and the Kool-Aid man. As an accomplished Operations Consultant at FocusOne Solutions, she has efficient communication skills and thrives on ever-changing fast-paced environments. Amelia is a proven leader in customer service and has the ability to create processes for accomplishing company wide goals. She’s a highly organized team player with a knack for customer satisfaction.