Tax Reform Update
Last update: January 1, 2018
For most travelers, the news is OK. It doesn’t impact a decision to be a traveler versus staff. Current compensation schemes by agencies have not changed. So no one’s take-home pay from agencies will drop.
Single travelers who don’t itemize will see a net gain of $1,650 not subject to federal income tax because of the net changes to the standard deduction and personal exemption total. That is around a $400 annual increase in take-home pay. That might be a bit of shrug for most as it will be all but unnoticeable on a weekly basis (about $8/week).
Some travelers who itemize will lose out, especially if they were accustomed to claiming certain deductions usually only familiar to a tax professional who specializes in healthcare travelers. The rules have changed for a couple of items. One is the ability to deduct mileage costs based on IRS allowable amounts (53.5 cents in 2017) if it exceeds the travel allowance from your agency - as it usually does. Some travelers also deduct the commute mileage from the remote housing to the remote workplace. That is also gone.
The other important item for travelers who itemize are M&IE, or meals and incidentals, sometimes called per diems. If an agency does not pay the maximum allowable amounts (per this .gov site), previously you could deduct the difference. That is gone.
There are a number of other federal return deduction reductions that have made news including limits on mortgage interest deductions, contributions to charities, and local and state taxes. Also unreimbursed miscellaneous business deductions such as scrubs and professional associations (including PanTravelers) and licenses/certifications. However tax-free reimbursements (technically what tax free stipends such as housing and per diems are called by the IRS) from agencies can continue.
These itemized reductions affect travelers and staff equally, so they should not change the financial calculus to be a traveler versus staff.
This article will be updated as the actual bill is analyzed further, and the IRS adopts rules to implement it. That could take us a few months into 2018 before everything is clear.
One item that has met with much news coverage is how changing your tax status from an employee to an independent contractor can provide a new reduction in taxes. And indeed that could lower your tax bill and increase your after-tax net income. However, service companies are generally excluded, and it is not clear if the same is true for healthcare travelers (who seem to fit that category as a business rather than an employee). It does seem unlikely as physicians are on the excluded list. When the IRS crunches the new tax bill, their new regulations should make it clear.
There are other practical impediments for independent contractors. Few agencies allow reporting on an IRS 1099 form (revenue) for an independent contractor (a “pass-through” tax structure) versus a regular employee W-2 (income). Many facility or vendor manager contracts specifically disallow the use of independent contractors. There are a number of legal issues related to agencies and hospitals that discourage the use of independent contractors, from workers compensation, to unemployment, to IRS audits of agencies that use independent contractors (generally found to be legal from a tax court perspective for travelers, but still a costly legal hassle for the smaller agencies who might use independent contractors).
Taking an independent contractor path is difficult and most travelers will find it impractical.
That said, there are a small number of 1099 travelers, and they do benefit versus W-4 both before and after the 2017 tax bill. They will still be able to take mileage and M&IE deductions first dollar before it is passed through to their 1040 return.
There are even fewer travelers who have set up their own agency to bypass the middleman and contract directly with hospitals. This has become much harder with the rise of additional middlemen in the form of vendor managers who handle all contracts with agencies.