What is a Tax Home? 

How do you end up being "paid more" as a travel contract employee?

Having a tax home in a different location from where you take a travel contract is how the big bucks are made. If you maintain a tax home while traveling, your weekly paycheck is split into two buckets: tax-exempt money and taxed money. The goal of a good travel paycheck is to maximize the tax-exempt money. In instances that pay is categorized into various tax-exempt options (like various reimbursements: see FAQs page for examples and further information), your hourly pay may be lower (i.e., $18-20/hour) with stipends (often given in weekly rates) making up for the lower hourly rate. You can take a contract position in your tax home, but there will not be tax-exempt pay. There are two methods for determining the maximum tax-exempt pay: the GSA method and the High-Low method. If you're looking for explanations of these methods, click here.

 

According to the Internal Revenue Service website, "your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you are permanently or indefinitely engaged to work as an employee or self-employed individual." Basically, regardless of the address of your actual permanent residence (mailing residence, where you eat/sleep), your tax home is where you are employed and conduct business. Your permanent residence is not necessarily your tax home. If you would like to establish a certain location/city as your tax home, you must hold a fully taxed position in that location. You can change your tax home by taking a fully taxed position in your desired location/city.

 

Here at Interstate SLP, we are all about following the rules when establishing and maintaining a tax home. Below are a few ways to do so; however, it is always best to discuss your personal situation with a tax professional. Because contract work often occurs in many states and requires a niche knowledge of tax, we recommend TravelTax. We have used them as a resource to answer all of our tax home questions in the past, as well as to prepare our annual taxes. You can book a consultation with them here. It is worth every penny.​​

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Do NOT take any tax information from a recruiter for granted. Tax is not their specialty; speak to a tax professional.​​​​

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​Tax Home

Establishing a Tax Home (some options):

1. Take a fully taxed job at the location you are wanting to establish at your tax home for a duration of at least 13 weeks. This is completed by taking any "regular" job or a contract job without tax-exempt stipends.

2. Take a PRN or local job at the location you are wanting to establish at your tax home and demonstrate you earn at least 25% of the taxable income earned elsewhere.

3. If you are establishing your childhood home (i.e., have not had a permanent residence or job in another location, excluding college or jobs held in college), your tax home is likely already established at that residence.

Note A: Once you establish a new tax home, you cannot return to your previous tax home to work a travel contract for one year.

Note B: Until you change your driver's license, the state that issued the license still has the right to levy their state income taxes out of your taxable income.

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Maintaining a Tax Home (meet 2 out of 3 requirements):

1. Go back to your tax home for at least 30 days throughout the year or 60 days over two years; days do not have to be consecutive. Document this time (i.e., evidence on credit card statements, plane tickets, etc). Continue to keep the address listed on your driver's license, voter's registration, insurance, etc. at this location. This demonstrates a meaningful tie to your residence and community.

2. Duplicate your expenses by paying a mortgage, rent, or shared expenses at your permanent address while traveling and renting at your contract location. This allows your housing and food stipends to be tax-exempt.

3. Work and live at your permanent address at least some of the time (recommended that you earn a significant amount of fully taxed income). Think PRN jobs.

Note C: Keep traveling: if you work in one tax location for greater than 12 months or return to the same location (same location: within a commutable distance to your previous workplace) 3 calendar years in a row, the assignment is no longer considered temporary and that location is now considered your tax home.

 

For more information or if you have questions about your specific situation, please refer to https://www.irs.gov/publications/p463 or schedule a consultation call with TravelTax here.​​​​​

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