How Much Do Nurses Get Taxed? Educate Yourself and Deduct!
By Jennifer Mitchell, contributor
People who are interested in finding a travel nursing job may wonder: Do these nurses pay tax? And if so, how much do nurses get taxed? Like everyone else, travel nurses pay tax on their income, but the unique nature of travel nursing means it's possible to lower your tax bill and keep more of your money in your pocket. We sat down with tax expert Brendan Willmann to learn the secrets to paying less travel nurse taxes.
Do proactive planning
When it comes to paying less travel nurse taxes, Willmann says his most important recommendation is to do some proactive planning. "Proactive planning is used to optimize your tax situation," he explains. He advises against waiting until tax time to find out what tax bracket you fell into. As a travel nurse, much of your income can be tax-free, so he says you have the flexibility to plan ahead and end up in the right bracket.
The IRS recently announced inflation adjustments for these brackets in tax year 2020. For individual single taxpayers, the new tax brackets that will apply to the tax returns filed in 2021 are:
- 10% for the first $9,875 in taxable income
- 12% for taxable income between $9,876 and $40,125
- 22% for taxable income between $40,126 and $85,525
- 24% for taxable income between $85,526 and $163,300
When doing proactive planning, Willmann says it's important to pay attention to your marginal tax rate. "That's the tax rate on one more dollar of income," he says. For example, if you earn $40,125 in taxable income in 2020, your next dollar would be taxed at 22%.
Pay attention to taxable vs. non-taxable pay
As a travel nurse, you have the opportunity to earn many types of non-taxable income, such as travel reimbursements, meal stipends and housing stipends or reimbursements. While non-taxable pay can help lower your tax bill, it also has some potential drawbacks to keep in mind, Willmann cautions. He says that if travel nurses have too much tax-free income, they may not have enough on-paper income to qualify for a home mortgage.
For travel nurses who want to buy a home in the future, Willmann, again, emphasizes the importance of proactive planning. "I think nurses often should consider a multi-year plan where they look and see how much income they need to show in the years prior to purchasing a home," he says. If you're in a low tax bracket, Willmann says it may be beneficial to take more pay in the form of traditional W-2 income, even though it's taxable.
READY TO EARN MORE? Search our available travel nursing jobs.
Know the difference between tax deferrals and tax credits
Travel nurses who want to lower their tax bills may consider contributing to a 401(k). Nurses who participate in these employer-sponsored retirement plans contribute pre-tax dollars, and their taxable income for the year is reduced by the amount they contributed, the Wall Street Journal explains. The money isn't taxed until they start making withdrawals during retirement.
While these plans can help travel nurses pay less tax, Willmann advises caution. "When travel nurses reduce their income, sometimes I think they do so without a full appreciation of the future liability that may be associated with a current deferral," he says. Unlike a write-off or credit, a deferral isn't an avoidance of tax. It just means you'll pay your taxes later. If your income increases over your lifetime, you could be in a higher tax bracket — and pay more taxes — when you start withdrawing money from your 401(k).
Know what deductions are allowed
Travel nurses who are interested in lowering their tax bills may come across online advice that recommends keeping good records for various deductions, such as travel expenses. Thanks to the recent Tax Cuts and Jobs Act, this advice is now outdated. Willmann says that "a lot of those deductions have either gone away . . . or for a large portion of nurses, they won't be relevant." Since these deductions have been eliminated, Willmann says travel nurses should look for travel expenses to be covered by their agency.
While nurses can no longer deduct unreimbursed employee expenses like travel, the IRS still allows other types of deductions. Some allowable deductions include unreimbursed medical and dental expenses, home mortgage interest and charitable donations. If you take any of these deductions, remember to keep good records.
How much do nurses get taxed? It depends on their income, but with the right tax optimization strategies, they may be able to lower their tax bills.
LEARN MORE: How Low Should You Go? Understanding Taxable Travel Nurse Pay