Figuring out what a ‘Tax Advantage’ program is can be confusing.
Many travel nursing agencies will offer tax-free portions of your pay and most will refer to this as some sort of “Tax Advantage Program”.
Travel Nurses MAY be eligible for tax-free reimbursements or allotments if they meet certain restrictions. We will discuss these restrictions at a later date. I consulted with my tax experts at Travel Tax and asked them to explain Tax Advantage Program.
Daina Smith: “The first thing to realize is that a “tax advantage program” is a marketing term. It is not some sort of legal tax break that congress passed for the benefit of travel nurses. A company that advertises a “tax advantage program” is doing nothing different from a company that gives you per diems and other tax free reimbursements. It is just like the store that offers you a “two for one deal.” There are doing nothing different from a store is giving you 50% off. One term appeals to one group of shoppers more than the other = marketing.”
Gypsy Nurse: “Ok, that makes it a little easier to understand. Now, Why do I care about tax advantage and does it even benefit me?”
Daina Smith: “Now that we are done explaining what tax advantage programs are, let us get down to talking about taxes. (Yeah, the boring part.) Occasionally in talking to clients, we hear the comment that there is no reason to take reimbursements in advance from their company, when the same amount of money can be deducted at the end of the year on their tax return. These clients usually have no immediate need of the cash up front and think that it would be wiser on their part to save all the deductions until the end of the year, so they will have one whopping refund instead of the cash now. And that is true in the purest sense. But based on our current system of tax laws, there is a tax advantage that you get by taking them in advance: you bypass your Social Security and Medicare Taxes.
When you take deductions on your tax return, you are recouping the income taxes you paid for the year; there is no provision to get a refund on payroll taxes. In 2012 the rate for SS and Medicare is 5.65%. The person that takes $8000 in deductions on their tax return instead of taking it as reimbursements from their employer, loses out on the $454 that was withheld as payroll taxes.”
To Summarize: Daina Smith
1) The company that says “we offer a tax advantage program” is not giving you anything different from the one who reimburses you for your miles and gives you meal per diems or housing stipends.
2) There is an advantage to taking these reimbursements from your company instead of deducting them at the end of the year.
Hopefully you now have a better understanding of a Tax Advantage Program. If you have further travel related tax questions, you can contact Travel Tax or check out their website at TravelTax.com for further information.