Tax Reform and Travelers
- Stipends/Per Diems/Travel Reimbursements are not being taxed
- The tax home requirement Does not change
- Travelers can no longer deduct unreimbursed employee business expenses like mileage, meals, CEUS, uniforms, licenses, union dues
- Independent contractors are only taxed on 80% of their net income
- New Corporate tax rate at 21%
- IRS Likely to change reporting (not taxation) of stipends in the future
- Recordkeeping is still necessary to justify the tax-free stipends
EMPLOYEE BUSINESS EXPENSES ARE GONE
Travelers can no longer deduct the costs of transportation, meals, lodging, seminars, licenses, uniforms, shipping, rental cars more than reimbursements. For example, the 2K drive to the new assignment which may generate deductions of over $1000 is not deductible even if the agency only gives you $300.
Travelers Most Affected
Travelers who work seasonal assignments at hospitals that maintain their own travel pools.
Generally, these facilities provide some travel pay, housing but no meal allowances. However, these transportation and housing amounts are added to taxable income as these facilities rarely provide tax-free reimbursements. Many travelers working these kinds of contracts have allowable deductions approaching $8000 just for the three months of work. With employee business expenses gone, there is no tax relief for these expenses.
The agency provides the actual housing, pays a small amount for travel and no meal allowance. Travelers working these types of contracts will have roughly $5000 of allowable deductions for transportation and meals per each 3- month period.
Travelers with Mortgages
The travelers who stand to lose the most are the ones who own their own homes, have mortgage interest and real estate taxes that they normally would claim on their tax return in addition to any business expenses they have.
We may find agencies reworking their reimbursement practices to accommodate a broader range of expenses. For example, instead of concentrating a large number of reimbursements in housing, some of the housing allowance can be shifted to items like licenses and continuing education. If a traveler is reimbursed for their housing, meals, mileage and licenses, and continuing education, they are less likely to think that traveling does not have a financial benefit. However, this is where a traveler needs to be cautious – it is a perceived value versus an absolute value. To illustrate, let’s say an agency gives $2000 a month for housing, $1000 a month for meals and $300 one way for travel ($600 round-trip). The total amount of reimbursements for three-month contract is then $6000 + $3000 + $600 = $9600. Instead of concentrating so much reimbursement in the housing and meals, let’s say the agency decided to give
$1500 a month for housing, $750 a month for meals, $750 each way for travel ($1500) and $1350 for licenses, continuing education, and mandatory uniforms. The total amount of these reimbursements is still $9600 for the three-month contract; however, the perception is that most of the expenses for the contract are covered. The perception has improved, but the absolute value of the reimbursements has not.
CORPORATE TAX RATES ARE LOWER
Will wages for travelers increase now that the agencies have a lower tax rate?
- Most of the customers the agencies cater to are nonprofits. The non-profit hospitals don’t benefit from the lower corporate tax rate. At the same time, they are fully aware that the agencies stand to reap a higher profit from a contract with a facility. Will hospitals now lower their bill rates knowing that the agency profit and bottom-line will not suffer?
- Most agencies are not traditional corporations. The owners are taxed on the earnings, not the corporations
The lower corporate tax rates are not only for corporations but self-employed individuals (1099).
Under the new tax laws, self-employed individuals will only be taxed on 80% of their net business income (profit after expenses) so long as their total income does not exceed certain thresholds.
Most healthcare travelers have not been able to work as independent contractors. Many are not interested in the additional amount of paperwork that is involved. Additionally, the IRS and the Department of Labor generally view the work of the bedside nurse, therapist etc. as supervised employee activity versus an independent contractor. This worker classification hurdle has generally prevented most travelers from working independently.
All the expenses that are lost as an employee are still deductible as an independent contractor. Since passage of the law, there is a lot more interest in working as an independent contractor.
Since employee business expenses are no longer allowed, the IRS has lost an important window into the reimbursement practices of employers. Under the old laws, when an individual had a high amount of employee business expenses on their tax return, the IRS could audit that taxpayer and request a copy of the employment agreement with the staffing agency. We may see the IRS requiring that per diems be reported on the W-2 with a corresponding form in which the taxpayer is required to validate the amount of reimbursements that they received. We may also see an increased number of audits simply by association with a staffing firm.
HEALTHCARE INSURANCE MANDATE
Starting in 2019, the tax penalty for not having health insurance is gone.
WHAT WILL THE STATES DO?
Most state tax returns start with some number pulled from the federal tax return. Currently, many states are still allowing employee business expenses. Since the tax reform bill was passed at the very end of 2017. State legislatures have not had time to review the impact of the bill on their tax revenue.
Travelers still need to justify their per diems. Make sure you keep enough records of your transportation to cover the travel pay, and records to show you had lodging expenses at the assignment each day of the contract.
Joseph Smith EA/MSTax
President, TravelTax LLC
46 St Mark Rd, Taylors SC 29687