Life has changed dramatically with COVID, especially life as a traveler, healthcare or otherwise! We’ve had several calls recently from travelers asking: “Due to COVID, travel contracts are scarce, and I’ve been offered a permanent job. If I take a permanent job outside of my tax home, how will this affect my tax home?”
Taking a permanent job shifts the tax home to that new location unless you have more income from another location. The reality is that you have got to work, and travel contracts are scarce or being canceled, so what do you do? You can take the permanent job for however long you need to; however, your tax home will shift.
If you are planning to go back to traveling after all this blows over, and want to use your previous tax home, then you will mostly likely need to reestablish it. How do you reestablish that tax home? By earningsignificant income in the area that is fully taxed. You might ask, what is “significant income”? Well, considering that the traveling life is divided into 3-month intervals and one could work 4 assignments a year. A starting point is 2-3 months of income in that new location.
We’ve had this question multiple times in the last 2 weeks. Here is the scenario:
“My pay package includes a housing stipend because I am finding housing on my own. However, hotels are offering free stays for front-line workers, that is not provided by my company or the hospitals. At the hotel I do pay for parking. What will happen to the housing stipend if I accept the free stay at the hotel, considering I have to duplicate expenses?”
The answer is that you will need to duplicate expenses for lodging since the lodging is being provided by a third party. The solution is to pay SOMETHING to the hotel, maybe a tip to the housekeeping staff or for other amenities that they offer that you will use in the room. Parking does not count as lodging expenses, unless you are a hippie! : ) Under the rules there needs to be SOME expense to trigger the exclusion of the per diems.
The most frequent question we get these days is about unemployment – specifically WHERE one applies.
The link below is a good discussion on this. The confusing part is that it doesn’t really use the proper verbiage to address travelers – where one “lives” can be different based on context and travelers don’t “live” at the assignment per se.
The default answer is that you apply in the state you last worked (reporting taxable wages) UNLESS you are an independent contractor – if you are a contractor you apply in your home state. The employer/agency pays into unemployment systems in the state that you are working so that is the first stop. Every state is different so there is no one answer that fits all.
Now, keep in mind that we are tax advisers, not unemployment benefits administrators 🙂 However, having served the contingent staffing industry for 20 years, this is a very common event and filing in the last work state is the normal approach.
During the COVID crisis, several healthcare providers are taking local assignments to help with the surge of affected patients. They have valid concerns about exposing their family or those they share a home with to the virus.
Can they receive tax free housing even though they are working locally?
The answer is yes.Tucked away in the Regulations (Section 1.162-32(a)) is a little-known provision for local lodging primary designed to accommodate local business meetings, conferences, training and other related activity. In addition to these situations, it also allows the lodging to be provided when the facts and circumstances of a situation require local lodging. The current COVID pandemic is such an event that would fit those limitations.
There are a few items to note.
The lodging should be a dwelling that the employer/agency/hospital provides in kind. In other words, they pay for the lodging directly. That can be a hotel, house or apartment.
The lodging must be a necessity rather than a personal preference
The lodging cannot be lavish or extravagant
There cannot be a greater social or personal benefit beyond the provision of a place to stay to fulfill one’s duties at the care facility.
These limitations do not allow giving a per diem in place of directly paying the lodging provider or paying by receipt. Agencies are required to track their non-taxable lodging and meal reimbursements
This is a legitimate question for healthcare and other critical needs professions that are asked to stay on at a facility, or quarantined longer than a year in one geographic area (metro, not state).
The reason this is important is that per diems are taxable after one year of service in the same metro area.
Currently, none of the recent legislation has changed this rule, although an influential tax law firm reached out in early March with the suggestion ( see Request to Liberalize Away From Home Rules see page 5-6).
As of March 26, 2020, there has been no change in policy.
The 50-mile rule to determine whether stipends can be received tax-free is basically a myth. ITs not about the distance, it’s about whether you require and pay for lodging at the assignment. However, hospitals (facilities) often have a distance rule and it frequently is 50 miles. See how this can create confusion in the conversation with the recruiter and what to ask.
This short blog post is not going to cover ever aspect of the NEW W4 form that the IRS has created. This is the form you give to the employer to determine the amount of tax payments taken from your check with each payroll cycle- take a look at it: https://www.irs.gov/pub/irs-pdf/fw4.pdf
I realize that many of our clients don’t want to spend too much time on this so here is some quick suggestions for filling this out. Remember, this only applies to Federal taxes, not state. States can feed off the Federal form, have their own, or come up with some really zany approaches like Arizona does where the ask you what percentage withholding you want.
The EASIEST advice. Want a really BIG refund (but a smaller paycheck)? Fill out your name, address, the marital status you use on your tax return, check box 2c and sign at the bottom. DONE! Disregard the wording of the questions as a traveler will never fit the descriptions. The label may be wrong but the math behind the declaration on the form fits. Remember, you don’t give this to the IRS, you give it to your employer. You wont be taken to jail for what you put on this!
Now- that advice should handle those that view their returns as savings accounts, but realistically, the dilemma many travelers face is that many have different wages with each job and some can be all over the place. 25/hr at one , 15/hr at another, short hours one week, OT the next etc. We don’t have average, dull, one job a year lives!
The next piece of advice applies to SINGLES who don’t want a Super Gulp sized refund and whose wages are within $2 for each contract:
To compensate for the varying wages AND for some, to ensure that there is a sufficient Federal refund to cover the state amounts due (for those in high tax states), you need a buffer. Here is the best guide o keep things simple and I am assuming you get paid WEEKLY. Double this if you get paid BI-WEEKLY. Assume you work 52 week a year. To get a $1000 refund, you need to overpay your taxes by roughly $20 each check (20 X 52 = $1,040) (40 x 26 for bi-weekly). On the W4, fill out your name, address, marital status you will use on the return (assuming single or separate here), skip to line 4c and put $10 for a $500 buffer, $20 for $1,000 etc. If you anticipate only working 48 weeks (4 contracts with a week off in between), divide $1,000 by the weeks you will work.
Again, this works only when your wages amount is consistent through each contract. The more erratic the wages, the more likely you should just check Box 2c and be done.
MARRIED? HEAD of HOUSEHOLD? There is way more to this and at this point you are best calling us or wait for my next entry. You can use the quick fix noted in red above. Unfortunately, the forms are not designed to be simple – see the next paragraph. If you are so inclined, my wife Daina found a really good video that is more in-depth: https://www.youtube.com/watch?v=_VPjX0dDTgs
One important thing to note – these revisions to the W4 are designed to keep refunds low – for many, that’s a new language. AND, travelers don’t fit cookie cutter solutions either , but hey, that’s why we are here!
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Wondering when the Per Diem Revenue Procedure was ever going to be updated? Well the IRS just updated it! Click the following link to go to new IRS Revenue Procedure 2019-48 which addresses per diems. This replaces IRS Revenue Procedure 2011-47.