Locum Tenens Tips

7 Tips for Filing Multiple State Tax Returns

Tax tips for locum tenens professionalsIf you accepted locum tenens engagements in more than one state last year—unless you’ve already filed—you’re probably in the midst of gathering contracts, receipts, and other documents needed to prepare your tax returns.

To outline some of the things you can do to better facilitate the process, we spoke with Joseph Smith, EA, enrolled agent and owner of TravelTax, LLC. Based in Norfolk, Neb., Smith’s practice specializes in tax preparation for mobile healthcare professionals, including locum tenens providers.

  • Understand two fundamental tax basics. Regardless of where your income is earned, your home state has the right to tax it. That being said, your work state(s) can tax your income as well. Not surprisingly, it may at first seem as though you’re being taxed numerous times. But your home state—in keeping with its method for determining income tax—will give you a credit for amounts paid to other states.
  • Realize there are exceptions—namely, reciprocity agreements between states. There are a number of states that regard income earned in a border state as income earned in the resident state. For example, if you took a locum tenens opportunity in Ohio but your permanent residence is in Ky., the income you earn in the Buckeye State is considered income earned in Ky.
  • Know how to allocate expenses. There are two kinds of expenses you should distinguish: those directly related to a singular state and those pertaining to all opportunities. Examples of the former include license fees and cost of transportation to get you to a locum tenens engagement. If you take a temporary placement at a facility in Philadelphia, for instance, the travel expenses you incur would apply directly to income earned in Pa.
  • Recognize each state determines its own tax policy. Every state has different tax brackets and rates. Some, like Pa. and Colo., have flat tax rates; others, such as Fla., have no income tax. Most states have progressive brackets and necessitate reporting data from the federal tax return to establish taxable income. What’s more, numerous states permit deductions that may or may not be allowed on the federal return. There are also various exemptions for investment and retirement income to consider.
  • Understand how your business classification impacts federal and state tax reporting. If it is “self-employed,” you will file a Schedule C form for every state in which you’ve practiced. But if you are operating as an S Corporation and give yourself a salary, you will file payroll in every state. Based on your choice of entity, your filing can become more complex.
  • Keep excellent records. While maintaining paperwork is always important, it’s even more essential when you earn income in more than one state. You may be asked to provide additional documentation, such as photocopies of returns filed in other states, by some state tax authorities. Moreover, be sure to keep track of “overhead” items relevant to all opportunities—such as scrubs or reference manuals—and expenses that apply to specific states.
  • Get assistance if you have concerns or need reassurance. Whether you have questions about filing or want to better understand the tax issues important to locum tenens providers, consider hiring an experienced tax professional, like an enrolled agent or CPA.

Tax information contained in this document is not intended to be used, and cannot be used, by any person as a basis for avoiding tax penalties that may be imposed by the IRS or any state. We recommend each taxpayer seek advice based on his or her circumstances from an independent tax advisor.

About the author

Bobbi Harrison

Bobbi Harrison is the communications manager at Weatherby Healthcare. She is the former editor of LocumLife and Healthcare Traveler magazines, and also served as the managing editor of Healthcare Staffing and Management Solutions. A recipient of the American Society of Business Publication Editors’ prestigious gold award, she has more than a decade of publishing experience in the staffing industry.

Archive