But I Didn’t Work There!!
…and similar comments about travel nurse taxes and state tax returns….
In previous articles, I have pointed out the difference between a permanent residence and a tax residence; and how this distinction is the main source of confusion among travelers, recruiters and staffing agencies who try to determine whether travel reimbursements can be excluded from taxable wages.
In this article, I want to focus on the permanent residence side of things and how it affects the filing of state tax returns. When travelers work in a states other than their permanent residence, a common mistake that tax preparers and travelers make is focusing too much where the income is earned vs. where the traveler is domiciled. “Domicile” and a permanent residence are closely related and for the purpose of this article, I will treat them synonymously. While they are slightly different concepts, travelers tend to have their permanent residence and domicile in the same place.
A person has domicile in the state where his legal ties are more closely aligned. A driver’s license, car registration, voter registration and resident professional licenses are significant connections to a state. These ties are often established long before a traveler begins their career and state tax agencies view these as significant proof of residency in a state. An individual files their “resident” tax return, not based on where they earn their income, but where their permanent residence/domically ties are strongest. There are three additional reasons that this applies
- Travelers are working “away from home”. They are not moving, but temporarily “mobilizing” to an assignment location. The fact that they do not earn income in their home state has no bearing on whether they file in their home state or not. Further, when travelers receive tax free reimbursements for lodging and meals, they are usually attesting to the agency that they maintain a residence in their home state.
- Almost every state has statues or regulations establishing a “presumption” that a taxpayer’s domicile will continue until the taxpayer BOTH severs all significant residential/domically ties AND establishes new domiciliary ties with their new state. It’s not enough to simply abandon a residence but establish a new one.
- For nurses domiciled in a compact state, the filing of a resident tax return is universally expected for renewal or validity. Nursing boards and state tax agencies readily exchange information and some states treat tax delinquency as a basis for non-renewal of a license.
The take away:
Travelers report worldwide income to their home state as full year residents and receive credits for taxes paid to other states (unless a reciprocity rule applies). If the tax rate of the home state is higher than the work state, the difference in tax must be paid to the home state. The fact that one does not work at home does not change this.
Would you like to learn more?
Check out the TOP 10 Questions for Travel Nurses on Taxes.