Tax season is just around the corner. Please note these interesting facts provided by Joseph Smith of Travel Tax. At traveling healthcare professionals should read this information.
***State Tax News
Professional practice licenses targeted more It all started in California-the practice of pulling a list of active professional practice licenses including nurses and physicians, and cross-referencing the list with state tax return filings. Any non-filer, regardless of whether they earned income in the state, was sent a letter asking for a tax return. If there was no reply within a certain period, a tax lien was filed based on the amount of income reported on the federal return. This practice is now extended to almost every state. We are encouraging clients to file what is known as “zero” returns in states in which they hold licenses, but do not have income. Since the “possibility” of earning income still exists, state tax agencies hungry for additional revenue are pursuing this.
New York no longer accepting federal extensions Most states will typically accept a federal filing extension in place of their own form. Only a few states require separate extension to be filed. New York is now among those requiring a separate extension.
***Other Tax News
Staffing firms under exam
As we mentioned in our last newsletter, there are over a dozen staffing firms under audit by the IRS. We may see some additional changes in the way agencies construct their tax residence statements. One possibility is that some may require proof of mortgage payments or rent for those travelers claiming to have a tax home. A problem that industries employing mobile professionals have had all along is the lack of consistency with screening traveler’s tax homes.
State residency Issues
We have mentioned in previous newsletters that state tax departments have become very aggressive in asserting residency on anybody remotely tied to a state. States are particularly targeting those who have moved to another state but have lingering ties to the former state. It is important to note that most states assume that your residency continues until you have not only established a residence in the new state AND shut the door behind you in regards to the former state. It’s not enough simply to move but it’s equally important to sever all ties to the former residence. Otherwise the former state of residence will have adequate justification to assert residency under their domestic laws spreading their tax net over your worldwide income.
Receiving per diem for housing while the company provides the housing One issue that is arising frequently in industries employing mobile professionals is when an employer or staffing agency provides the housing for the traveler AND pays lodging per diem, taking out their costs, and then paying the remainder the traveler tax free. This is not kosher in the eyes of the IRS. A per diem given to an employee as a reimbursement for lodging should be free of any employer involvement in the lodging cost. In other words, per diem is for the employee to use not the employer to dictate its use. When the employer is involved in the cost of lodging and pays a per diem or stipend in excess, the amount that exceeds the cost is taxable to the employee and subject to employment tax to the employer.
Another issue that is common among staffing agencies is the practice of paying a blanket per diem or allowance without allocating a portion to meals. Under the regulations, when an allowance, stipend or per diem is less than the published rates, 60% of the payment is deemed to be for lodging and 40% for meals. Since meals are only 50% deductible to the individual and employer (absent rare exceptions), allowances cannot be held out as 100% deductible payments. An employee’s tax return is also required to reflect this allocation.
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