Tax Memo – Tax Planning For Travelling Medical Professionals (Nurses, Doctors & Therapists)

Questions? Concerns? Call me on (732) 673-0510.

Traveling medical professionals can work under a W2 employee method, or as a 1099 subcontractor (Self-Employed) method.

Either way, travelling medical professionals who work in states outside of their resident state, usually have a tax filing requirement in those states. Those are called non-resident states.

These rules apply to anyone who physically works outside of their resident state, not just for medical professionals.

Let’s start with you as an employee.

IMPORTANT NOTE: W2 Employees can no longer deduct their unreimbursed business expenses on form Schedule A. Deductions such as mileage, home office, uniform and supplies, to name a few, are not tax deductible for W2 Employees. Please consider this when you are negotiating your contracts. A Subcontractor, detailed below, CAN deduct business expenses on their Schedule C form. This is usually much more favorable from a tax perspective as you can imagine.

As a travelling employee you are going to be asked to complete a W4 form when you take a temporary / travelling job. The W4 tells the employer what your filing status is (single, married, etc) so you have the correct amount of tax withheld. Most of us have filled out a W4 before. But the W4 has recently changed. I have a great podcast that explains how to handle these changes. Check here to check that out.

You also should be giving them W4 information for the state you are going to be working in. I call this the work state. It is not for your resident state unless your work state is also your resident state. This is very important.

So, when you get paid as an employee, you should see withholding on your paycheck for your current work state as well as federal withholding.

When you do your tax returns that year, you will need to file a resident state tax return (for the state you actually live in) AND a non-resident tax return for any states you had as work states.

You may ask me “Chris, if I pay tax to work states and also to my resident state, doesn’t that mean I am taxed twice?”

Good question. No, there is no double tax because you get to take a credit to your resident state for those work state taxes that you paid taxes in.

Let’s talk about you as a subcontractor.

Subcontractors have a more complex tax and accounting situation.

Subcontractors are actually business owners and not employees. Many people say things like. “I am a 1099 employee.” There is no such thing and in fact they are mutually exclusive.

At year end subcontractors will be given a 1099NEC and not a W2 that reflects their total gross income. WARNING! A subcontractor does not have any taxes withheld from the company paying them so you must pay estimated taxes quarterly during the year.

If a subcontractor does not pay quarterly taxes, you will be subject to late payment interest and penalties. Subcontractors cannot wait until April 15th to pay their tax balances due.

A subcontractor needs to keep track of their expenses as they can be deducted against their total subcontractor income on their tax return.

I suggest that you open a separate bank account just for this purpose and subscribe to Quickbooks Online to assist you in maintaining your account records.

Most subcontractor travelling medical professionals will file a Schedule C, Profit and Loss from a business, with their 1040 form they normally file at year end. That looks like this.

Just like an employee working outside of their resident state, subcontractors must also file non-resident tax returns in their work states.

Maintaining logs of dates that you worked in all states becomes very important, especially for a subcontractor, as these days will be used to allocate income and expenses between the work states you have worked in.

The subcontractors may want to form an LLC to gain some personal liability protection.

But even if you form an LLC, I strongly recommend buying commercial liability insurance. Every self-employed person needs to have at least a small commercial liability policy.

A great benefit of being a subcontractor is that you can take advantage of retirement planning, such as SOLO 401Ks and SEP IRAs. Make sure your tax preparer is explaining how these retirement plans can benefit you as a self-employed person.

As we all can see, the tax implications can be significant if you are a traveling worker of any kind, including medical professionals.

Are you a travelling worker? Are you sure that you are in compliance with all state and federal income tax laws? This is definitely a situation where you want to hire a seasoned CPA to guide you.

And you’re in luck, because I know a good one!

Please call me on 732-673-0510 to discuss your specific situation.