There are patients that we dread to care for. During report, we tactfully offer to take more patients, a more critical patient, or even offer to float to another area to avoid being assigned to the ONE patient no one wants.
In the tax world, one conversation tax professionals dread is with a taxpayer that filed exempt and owes a bundle of taxes.
You do everything you can to avoid the obvious and you hope the taxpayer is already aware of their situation. If they confess, it’s your chance to exhale.
What is “filing exempt?”
“Filing Exempt” is a term that describes any change in withholding that claims extra exemptions or declares outright exemption for tax withholding. The form that is used for this is called the W4. Most states follow this Federal form but some have their own that works similarly.
Travel nurse file exempt for various reasons.
The most common is to bolster take-home pay during a financial hardship. Those periods in life are understandable but there are other reasons travelers file exempt that do not benefit in the long haul, especially when there is an amount is owed with the annual tax return.
1) Extended period of overtime
Travelers often confuse tax withholding with actual tax. The statement that someone is “taxed more” for working overtime is misleading. While more taxes may be withheld during an extended period of overtime, the extra withholding is triggered by formulas that anticipate taxes based on a prospective estimate of total annual income. If one makes $1000 a month, the withholding formula will base withholding on $12,000 a year. If they make $2,000 a month, the withholding will be based on $24,000 of income for the year. A dip in earnings or a part time second job can trigger less than optimal withholding for that source of income when compared to the total income the traveler earns for the year.
The same principal discussed in #1 applies here. However the IRS stipulates that a 25% flat amount be withheld for these payments. The employer can use the W4 claim as an alternative. The 25% is not a tax, but simply a mandated default withholding rate to ensure adequate taxes are withheld.
If you anticipate an extra boost of income or a large amount of deductions, consider the following before filing exempt from tax withholding:
- Only adjust your withholding slightly by 1-3 exemptions. You may have some excess withholding, but you are still earning income that needs tax payments and it prevents the worst case scenario of the next take away.
- Make sure that if you file exempt or significantly increase your exemptions, to change the withholding back quickly. Many travelers forget to do this. A one month delay can cause the traveler to owe at the end of the year.
- Just ignore it and leave the withholding where it is. You will get a larger refund at the end of the year but it is one less hassle to deal with.
Would you like to learn more?
Check out the TOP 10 Questions for Travel Nurses on Taxes.