Help! If I take a Permanent Job, How Will This Affect My Tax Home?

globe covid mask

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 earning significant 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.

Free Housing for Front Line Workers

hotel

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.

Relief for Those Stuck in the US due to COVID

covid world

This is for all those individuals and corporations with representatives that are not permanently living in the US but are working in the US temporarily or snowbirding.

A number of filing situations are triggered once an individual has spent more than 183 days in the US. Not every person is affected by this but some have delicate situations that are dependent on spending less than 183 days in the US (for example, FBAR filings, creating a Permanent Establishment etc.).

This week the IRS released guidance for situations where COVID prevents an individual from returning to their home country. Simply put, an individual will be able to exempt up to 60 days of presence in the US beginning at any date between February 1st and April 1st.

Here is the link to the announcement COVID and Days of Presence in the US

Healthcare Travelers – Get Ready for the Recovery

surgery

If you are thinking rationally about the COVID crisis, the next step is the slingshot that will occur to make up the delays in elective surgeries and then the baby boom that will come in December/January

Our firm’s home state is already starting the process

Resuming Elective Surgeries in SC

The lesson is that when things are negative, be in the position for the positive and vice versa.

Where to File Unemployment

unemployedThe 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.

Unemployment Insurance Relief During COVID-19 Outbreak

Where to File for Unemployment

I’m Taking a Crisis Contract – How Does That Affect my Taxes?

travel crisis coronavirus

Several travelers are accepting short term assignments in areas affected by the COVID pandemic. These assignments pay significantly more than regular traveler contracts and are often for a shorter duration than 13 weeks.

What about the taxes?

This is covered in other posts on our blog, but there are three things to note:

1) What is withheld from your paycheck for taxes is not the actual tax – it is an estimate of the taxes owed on the income you earned during the pay cycle.

2) The tax withholding will be higher in percentage terms since the calculation of the withholding ASSUMES you will earn the same amount each paycheck for the remainder of the year

3) The reality is that you will not earn this much with each check all year.

This leaves you two choices: You can either change your withholding short term or just let the withholding run the normal rate. If the later, any tax payments that are more than needed will be refunded when you file your return the following year.

Here is an illustration:

Jane normally earns 50K a year but has an opportunity to earn 7500 a week for 4 weeks on a crisis contract. She will earn 30K during the 4-week assignment, but 80K for the entire year (50+30). The tax withholding on the crisis contract will ASSUME she makes 7500 a week or 390K a year. 390K vs 80K is a big difference but it shows you why the withholding is so high.

What should your withholding be if you want to adjust it? Everyone’s situation is different so this will not work for everyone. Whatever you decide, DO NOT FILE EXEMPT. The one approach you can use is as follows using Jane as an example:

  • Calculate the amount you would earn if you worked the crisis shift all year (390K)
  • Subtract the amount you expect to earn during the crisis contract (30K)
  • Subtract from #2 the amount you expect to make at your REGULAR jobs (50K)
  • Subtract 20K
  • 390-30-50-20= 290K
  • Put this amount on Line 4B on the W4 Withholding Form

The 20K is a buffer should your expectations change and if you linger longer, you will want to adjust your W4 again.

This takes care of the Federal withholding. Every state is different, but if they use the old formulas that ask for EXEMPTIONS, claim Single and 5 or Married and 5.

And finally, after you are done with the crisis contract, CHANGE the withholding back to where it was before you started. AND, be safe!

A Short Overview of the Stimulus Payments

dollar bills

Stimulus Checks will be issued soon, and our office has received several calls concerning the when, how and why. Here is what you need to know:

  • The stimulus payment is a 2020 credit that will be reconciled on the tax return filed in 2021 for the 2020 tax year – IT’S NOT TO BE PAID BACK! 🙂 IT’S FREE MONEY!
  • It is a maximum of $1200 for singles, $2400 for married taxpayers and then $500 for each child
  • The payment phases out for Singles earning more than 75K, Married earning more than 150K and those filing Head of Household earning more than $112,500
  • The payments are being sent in advance based on the return filed for 2019
  • If the 2019 return has not been filed, it will be based on the 2018 return
  • If neither the 2018 nor the 2019 return has been filed, you will want to file soon
  • If you do not get all the stimulus, you may receive it when you file the 2020 tax year return in 2021
  • Currently, the IRS is requiring all individuals to file a return to receive the stimulus, yet the law that was passed does not require that. The IRS has announced a special return for those that do not regularly file. Details are forthcoming
  • If you have provided a direct deposit account on your 2018 or 2019 return, the payment will go to that account.
  • The IRS will provide a database and web site that will allow you to change the account identification number if necessary.
  • The IRS has provided a web page with FAQs: https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

There is considerable confusion over these rules and an unnecessary rush to file 2019 returns when the 2018 return is sufficient. If you have not filed in 2019 and show more than the allowed income on the 2018 return, that would be a reason to file sooner provided the 2019 return income is eligible for the payment. If both returns show disqualifying income, you still have another chance when you file for 2020.

For a YouVideo explanation see: https://youtu.be/9lr-7oGdhGk

Local Assignments and Tax-Free Lodging during COVID

lodging

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

Reference: https://www.law.cornell.edu/cfr/text/26/1.162-32

Article in WSJ: https://www.wsj.com/articles/after-fighting-coronavirus-new-yorks-health-care-workers-sleep-away-from-home-11586895678?shareToken=st121eaf18385849a282c7e5712da35085