One of the best perks of being a travel therapist is making lots of tax-free money! It might sound too good to be true, but almost every travel therapist qualifies for this perk.
Below, I’ve answered all the most common FAQs about tax-free money and tax homes for travel therapists.
Why do travel therapists get tax-free money?
As travel therapists, you receive tax-free stipends because you are working temporarily away from your tax home. The key term here is tax home. To qualify for this perk of tax-free money, you just have to make sure you’ve set up your tax home the correct way and that you maintain your tax home while you are traveling.
What is a tax home for travel therapists?
Typically, your tax home is the area where you work. For therapists with a staff job, this is straightforward, you earn money and live in the same area. All that money is income, and it’s all taxed. That area is your tax home.
For travel therapists, it’s a bit different. You often don’t work in a single location for an extended period, so your tax home rules are slightly different.
You must have established a tax home by working in an area for a while before you travel away. Also, your tax home has to be a location that you return to at least 30 days a year and where you have expenses as you travel in order to maintain this home while working away from it.
Pretend like the travel therapy contracts you get are like a business trip. If you were to go on a business trip, you wouldn’t stop paying rent in the place you are from. You would keep having rent there, and you would go home when you can.
The government gives you this really cool perk of getting tax-free stipends to help reimburse you for costs since you are traveling away from your tax home, and you are paying for rent in two places. It’s similar to business trips when they allow hotel costs to be tax-free (a business expense) when you stay away from your homes.
How travel therapists set up a tax home in a new location
1. Move there.
2. Change your driver’s licenses and voting card (etc) to your new address.
3. Start paying rent or mortgage at what will be your tax home. (The home you will keep paying rent/mortgage at as you travel as a therapist).
4. Earn income that’s fully taxed for at least 3-6 months.
It’s important that a significant portion of your income is earned in this new location before you travel to make this location your tax home.
How to maintain a tax home as a travel therapist
These are the most common things that an auditor will have you prove to make sure you were entitled to the tax-free benefit. So make sure you have proof of each of these things in case there is an audit (they are super rare! But just in case):
1. Keep paying rent at your tax home. (At fair market value – not a $100 electric bill only)
2. Also pay rent at the new place you are working (This is what duplicating expenses means)
3. Take a travel assignment that is far enough away from that tax home that you need a second place to stay while you work there.
4. Come back to the tax home about 30 days a year so you didn’t “abandon” the tax home
5. Keep all your ties to that tax home – your driver’s license, voter registration, etc., need to stay at your home address
6. Keep moving! Don’t stay in one location as a traveler for more than 12 months in a 24-month period.
How to avoiding accidentally changing a travel therapist tax home
Make sure you don’t work in the same area for more than 12 months in a 24 month period. If you do, that might change your tax home automatically.
Think of an “area” as anywhere you can commute to. It doesn’t matter if it’s a new city or state, what matters more is if it’s commutable.
So, getting a new travel job too close to another travel job can accidentally change your tax home if you stay in that area for over 12 months in a 24 month period. You need to move to a whole new area if you have hit your 12 month mark.
What are some ways that travel therapists can have tax homes without breaking the bank?
1. Rent out your room while you are away (just don’t do this year-round, you need to be able to go back there for around 30 days a year)
2. Put your tax home on Airbnb and rent it out part of the year
3. Have roommates and split the cost so it’s cheaper for you
4. Move in with your parents and have them charge you rent for a room. Then your parents can give you a super generous Christmas gift to pay most of it back! No rules against that!
Can you be a travel therapist if you don’t have a tax home?
For sure! You just don’t get the one perk of tax-free stipends. You can still get paid great and have all the freedoms and perks of a traveler. And you don’t have to worry about maintaining a tax home, which gives you a bit of simplicity. You usually make about the same GROSS amount as travelers who have a tax home – but your paychecks will be fully taxed.
How much tax-free money will a travel therapist get?
It usually is over 50% of a paycheck. This is one of the reasons travel therapy is so lucrative – from this tax benefit alone, you will get an extra $150-$250 a week that will go into your pocket instead of the government. That means more money to travel to Bali with! (or save!)
Is tax-free money considered income for travel therapists?
No. Tax-free money is a totally separate line item on your paychecks and in the eyes of the IRS – it is not part of your wages. You can think of it closer to a reimbursement you get (if you qualify) to help you cover the extra expenses of a second rent and food while you are away from home. It is not categorized as income, which is why you don’t have to pay taxes on it.
Where does the money for the tax free stipends come from for travel therapists?
Some travel therapists think the government is actually paying them the stipends. That is a myth – the government just allows them to get a tax perk, and they also tell everyone how much you are able to get depending on the zip code and cost of living in that area. But the facility you work for pays for this. The facility pays a set amount for each hour you work, known as the bill rate. The staffing agency you work with then divides this bill rate into usually three main areas: the agency’s overhead costs and profit, your hourly income, and your tax-free stipends.
Who decides how much tax-free money travel therapists get?
The amount of tax-free money you receive is decided by the travel therapy agency you work for, but they have some pretty clear parameters to work within that are given to them by the government. Here’s how it works:
1. GSA Guidelines: Many agencies use the General Services Administration (GSA) per diem rates as a guideline. It’s a public website from the government, and you can look up all the current rates by city or zipcode at GSA.gov. The GSA provides daily rates for housing and meals intended to reflect the cost of living in different areas. The staffing agencies do not exceed what the IRS says on that website.
2. The staffing agency will use that guideline from GSA.gov and give their travel therapists as much tax-free money as possible. They benefit and don’t pay payroll taxes on that part of your paycheck, so it’s great for everyone. But they must balance this with making sure the overall pay package is sustainable within the bill rate they receive from healthcare facilities. If the facility is not offering a pretty high bill rate, the staffing agency cannot max out the numbers from the GSA.gov website (and that is normal – many pay offers we get as travelers are not as high as the government would allow).
3. Typically, an agency sets a minimum taxable hourly rate for travel therapists, usually around $20 an hour. After deducting this from the bill rate, the agency will allocate as much as possible to the tax-free part of your compensation. Whether they can provide the travel therapist with the highest amounts listed on the GSA website depends on the bill rate from the facility and the agency’s costs.
Do travel therapists make LESS than staff therapists on taxable wages?
Usually, yes! But big picture, you make 30-50% more. Travel therapy assignments typically offer a lower taxable hourly wage than permanent positions, and at face value, it might look like a pay decrease on your W-2s. But this is strategically structured so that a significant portion of the compensation can be provided as tax-free stipends for housing, meals, and incidentals, which are not subject to income tax. When you look at what actually goes into your bank account each week, it is going to be typically $1600 a week to $2100 a week+. That is significantly more than most places can offer their staff therapists.
Why did your travel therapy recruiter not tell you about tax homes?
If you read this whole page about tax-free money and tax homes, I guarantee you know more than 80% of the recruiters out there. Recruiters are awesome at a lot of things- but typically tax guidance and understanding tax homes is not one of them. Many have the best intentions but are just poorly trained in this area. Many times, their companies will instruct them to just say “I’m not a tax expert” or even worse – tons of recruiters are inadvertently giving bad advice and completely inaccurate information. Just be careful getting your tax home information from a recruiter.
The information on this page has been reviewed by a CPA who specializes in travel therapy taxes and the IRS rules and gave it a thumbs up for accuracy.
Why did your travel therapy recruiter say you just need to go 50 miles away from your home?
Welcome to the 50-mile myth! Let me be very clear, the IRS does not tell anyone how many miles travel therapists need to go. The IRS (which has the rules that travel therapists have to follow) says the assignment should be far enough away from your tax home to truly need to stay overnight away from home. It’s vague on purpose because this distance will be different in different areas of the country.
The recruiter could have an internal rule at their company that won’t let them pay a traveler tax-free money unless they are 50 miles away from their tax home. But that is just an agency rule and it has nothing to do with the IRS. In the event of an IRS audit, the agency’s internal rule about distance won’t matter. The IRS will apply its own criteria and not care what a recruiter told you.
Disclaimer, we are not tax professionals. so please consult a tax professional who specializes in travel healthcare if you have questions about your particular situation!
