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As a traveling medical professional, you receive tax-free stipends to cover your housing and meal expenses while away from home. Your agency will pay those to you on a weekly basis during your contract. The amount of money paid in stipends is dependent upon where your travel assignment is located. In order to make sure you are getting the most money possible in tax-free stipends, you can refer to the GSA.
GSA or General Service Administration is a government agency that was created in the late 40’s. One of its many tasks is to establish the maximum allowable daily stipends for contract workers in the country. This is the legal limit that you can receive as a traveler in tax-free stipends. Stipends are intended to cover temporary housing, meals and incidental expenses while working away from home. This tax free portion is a huge benefit to eligible travelers.
Eligibility
In order to receive tax-free stipends you must satisfy a few requirements. First, you must be more than a “reasonable commuting distance” from your tax home. Some sources indicate that this is defined as 50 miles or more, however there is no firm evidence of this figure on IRS.gov. In addition to being far from home, you must also duplicate your living expenses. This means that you need proof that you are paying for your regular home expenses (mortgage, rent, utilities, taxes, etc.) as well as paying for temporary housing during your contract. To make sure you are satisfying the eligibility requirements, I highly suggest you speak with a tax professional at traveltax.com before you start your assignment.
Calculating your stipends
Using the GSA per diem website is a useful tool when reviewing a contract’s pay package. To assure that your agency is paying you the maximum stipend for your location, take the following steps.
Go to the GSA per diems website at https://www.gsa.gov/travel/plan-book/per-diem-rates
Enter the city and state where your contract is located
Click on “Find Rates” to search for the GSA allowances for your contract location. This will load a page showing the maximum daily allowances your agency can pay you tax-free during your assignment.
To calculate your weekly lodging stipend, find the month in which you are starting your contract and multiply that figure by 7 days per week. Do the same for your Meals & Incidentals stipends. Using the San Diego example above, for the month of February this would equate to $1267 and $518 paid to you per week tax free.
If your stipends are not maxed out in your contract, show your recruiter the GSA rate and ask for the increase. By showing them you know about the GSA allowance, they will usually abide by the rates and increase your stipends without any issues. Some recruiters might try to shift money from your hourly rate to increase the tax-free portion. Do not let them do this. They should be able to increase your stipends without changing your hourly taxable rate.
Stay legal
If an agency is trying to pay you more in tax-free stipends than the GSA allowable, don’t accept it. This could create issues if you are audited, and is a huge red flag regarding the company's integrity. Agencies do not have to pay payroll taxes on per diems, therefore this may be an incentive for them to increase your tax-free portion while lowering your taxable earnings. Any extra money paid above GSA in stipends will be subjected to income tax, if you’re audited. Although your stipends are not reported on your W-2 at the end of the year, it would resurface if you were to be audited. The best practice is to use the GSA set amounts to receive your maximum allowance and to stay honest with your taxes. Getting you maximum per diems is the first step in getting the most out of your pay package.