When a nurse decides to take the route of being a travel nurse, they usually do so to gain more freedom and employment flexibility. They have more control over their hours and the location of where they work than a nurse who is employed by a singular facility. Travel nurses typically find their work through a nursing agency that places them in different locations for various periods, depending on the contract.
Most travel nurses who work for an agency are staffed as W2 employees. This means they are employed by the agency and have their federal, state, social security, and Medicare taxes withheld from their paycheck by that agency. However, some traveling nurses operate as 1099 contractors. This makes them responsible for their own taxes and gives them more work flexibility, often working outside of an agency.
There are many advantages and disadvantages of being a 1099 travel nurse, as well as many unforeseen factors to consider. Below, we break down the differences between W2 and 1099 nurses, the tax burdens for 1099 nurses, and the upside to being a 1099 contractor.
What Is a 1099 Travel Nurse?
A 1099 travel nurse handles all their documentation and taxes themselves. This means they’ll have to calculate and remit all taxes to the IRS and state authorities. For W2 employees, FICA tax of 15.3% of gross earnings is deducted from their paycheck to fund social security and medicare, and their employer pays for half of the tax. Similarly, 1099 employees pay a self-employment tax. While 1099 employees pay the full 15.3%, the tax is only applied to 92.35% of their earnings, ensuring fairness since W2 employees are not taxed on their employer’s contribution to the tax. Additionally, 1099 workers can subtract half of the Self-Employment tax paid from their gross income, when arriving at their Adjusted Gross Income, or AGI. Your AGI is used for determining your tax bracket.
With your income coming from so many different places and you being in charge of accounting for it all, it can be difficult to keep track of all your forms and documentation. If you’re not the most tax-savvy person or don’t have the time to handle your own taxes, many travel nurses will hire a tax professional. By hiring a consultant or advisor to take care of your taxes, you work without having the burden of remembering to file your taxes every quarter. A tax professional can also help you out with your tax exemptions.
W2 Versus 1099 Employee
When you’re employed as a W2 employee your company calculates all of your federal and state taxes and withholds them from your paycheck. Your company will also split the FICA tax 50/50 with you, with each party paying 7.65% of the tax. Depending on your employer and their policies, W2 employees are typically offered health benefits and the ability to contribute to a retirement account. There is also the benefit of knowing where your next job is as a W2 employee. Since W2 travel nurses are staffed through an agency, after their contract with a facility is completed, the agency will find them another work placement elsewhere.
As a 1099 contractor, you’re self-employed, meaning you’ll have to have your own health insurance and manage your own retirement accounts. And, as mentioned above, when a travel nurse is on a 1099 contract, they have to take care of all of their taxes themselves. 1099 workers have to consistently be on the lookout for their new job and negotiate their salary. That said, 1099 contractors enjoy the benefit of being able to accept and turn-down assignments as they please. They also have more control over their taxes and savings.
Tax Burdens for 1099 Travel Nurses
1099 travel nurses face tax burdens other travel nurses can avoid. Here are a few:
As mentioned above, 1099 travel nurses have to pay the 15.3% SE tax, rather than ½ of FICA for W2 employees.
1099 employees expecting to owe over $1000 in taxes have to file and pay taxes quarterly, whereas W2 employees have taxes withheld every pay period, but only have to file annually. If you underpay or don’t pay your taxes on time, you’ll be subject to a 6-8% penalty on the amount you didn’t pay.
No Pre-Tax Benefits
Travel nurses who are 1099 employees have to be careful with how they’re spending their untaxed income. Since their employer isn’t providing them with health or retirement benefits, they’ll have to make arrangements to provide those benefits for themselves.
Benefits of Being a 1099 Travel Nurse
While there are some challenges that come with being a 1099 travel nurse, there are a few benefits to consider as well:
As a 1099 travel nurse, you’ll have access to tax deductions that W2 employees do not. Your scrubs or uniform, professional fees and dues, travel, housing, job training, meals, and insurance premiums are all tax-deductible for 1099 contractors. When planning your federal income tax, you can also deduct self-employment health insurance premiums, contributions to a self-employment retirement plan, and one half of your self-employment tax.
Lower Taxable Income
Often,1099 travel nurses work for modest base pay, but they enjoy the benefit of nontaxable expenses being covered by their agency or the facility they are on a contract with, like housing, travel, food, and other work-related expenses. These non-taxable expense reimbursements can add up to as much as $30,000 a year.
Most 1099 travel nurses have the freedom to work where they want, decide how frequently, and set their own hours, rate, and projects. While there is some flexibility while working as a W2 employee through an agency, as a 1099 employee, you are ultimately your own boss.
Multiple State Returns
Traveling nurses need to file state tax returns in every state that they have worked in, in addition to a return for their tax home, that is, the state where their permanent home address is located. Every state has different laws for filing taxes, so be sure to look into them for the states you’ve worked in. As a 1099 employee, this can get complicated if you’ve worked in several states, so again, it may be beneficial to have your taxes handled by a professional.