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Question: What tax benefits can I claim as a registered nurse?
Disclaimer: NurseJournal is only sharing information that you can use to further your research into the tax law or speak with your tax preparer. This is not an endorsement or recommendation for a particular tax plan.
As a healthcare professional, you have several tax-saving opportunities based on the nature of your work. If you take some time to prepare your receipts and understand the deductions available, you may be surprised when your tax forms are completed.
Many people dread filing their taxes. It can color your thoughts and even affect your mood. Let's try to lighten those feelings by discovering some of the tax deductions and benefits you may have this year that will also lighten your tax bill.
What Deductions Can Nurses Use?
Taxes are mandatory charges on your income that help fund the government and pay for various public services, like first responders. The charges are based on a percentage of your income and depend on your income bracket. You can reduce those charges by lowering your taxable income using deductions.
For example, if you gave $3,000 to charity last year, you may be able to subtract $3,000 from your taxable income. This can lower the amount of money you are taxed and may lower your tax bracket.
Several tax deductions can benefit nurses but only when you know about them. The government allows you to take a standardized deduction or itemize your deductions. Which strategy you use depends on how many deductions you have.
Standardized vs. Itemized Deductions
If you take the standardized deduction, you will not claim specific nursing-related deductions. However, using the standardized deduction may be better if you don't have enough deductions to give you a significant tax break.
You won't know which is better until you've done the math. To ensure you're getting the best benefits, use the following tips to gather your receipts. The amount of money you spent this year on nursing and non-nursing expenses may offer you greater benefits than you'd imagined.
These common non-nursing expenses qualify as deductions on your taxes. There may be others that are less common. It is best to work with an experienced tax preparer to make sure you have covered all your bases.
- Mortgage interest
- Unreimbursed medical expenses that are greater than 7.5% of your adjusted gross income; can include prescription glasses, hearing aids, false teeth, weight loss programs for a specific diagnosis, and insurance premiums you paid out of pocket
- Property taxes
- State and local income taxes
- Child or dependent-care fees are partially deductible and were increased in 2021
Even without itemized deductions, several expenses may help reduce your taxes. They are entered on Schedule 1 of the tax form and are sometimes called "above-the-line" deductions. These include:
- Higher education tuition and fees
- Student loan interest
- Self-employment deductions
- Health savings account (HSA) contributions
- Individual retirement account (IRA) contributions
- Educator expenses
- Charitable contributions
The money you spend on your job or maintaining your nursing license may also be deductible from your adjusted gross income. These must be considered as you determine if standardized or itemized deductions are most beneficial for your taxes.
However, many past nursing deductions now fall under "miscellaneous deductions." The IRS rules for these changed with the Tax Cuts and Jobs Act.
Many of the deductions that were once allowed as 2% of your adjusted gross income were eliminated. These included deductions for:
- Work shoes
- Stethoscopes or other devices needed
- Union dues
- Subscriptions to professional journals
These deductions are allowed on your 2021 taxes only if you are an Armed Forces reservist, qualified performing artist, fee-based state or local government official, or have impairment-related work expenses.
However, some states continue to allow for some of these deductions, which can help you reduce the amount of tax you owe to your state but not your federal taxable income.
- Buying and cleaning uniforms not provided by your employer
- Cost of continuing education credits for nursing
- Travel expenses if you travel to your patient's home from one assignment to the next
- Cost of dues to a nursing union or nursing professional organization
- Professional license fees
- Professional or malpractice insurance premiums
- Fees for conference registration or professional journal subscriptions
- Cost of moving expenses to a new job more than 50 miles from your home
Learn about start dates, transferring credits, availability of financial aid, and more by contacting the universities below.
Take Advantage of These 5 Strategies to Lower Your Taxes
Max out your retirement plan contributions
The more money you put into your retirement, the lower your income and fewer taxes you are likely to pay. This assumes you use a traditional 401(k) or IRA and not a Roth IRA or 401(k).
Add more to your health savings or flexible savings account
Money added to an HSA are pretax funds set aside for medical expenses, meaning these funds will not be taxed. If you don't qualify for an HSA, a flexible savings account may help allocate tax-free money for healthcare or dependent-care expenses.
Encourage your employer to sign up for commuter benefits. This allows you to use pretax money to pay for bus or train passes or parking fees.
Fund your children's 529 college plan
If you have children who may go to college, consider investing taxed money now and enjoy greater growth than in a savings plan. The money isn't taxed on gains or withdrawals if it's used for qualified educational expenses.
However, there are several caveats to this strategy. These plans can be sponsored by either the state or an educational institution. In either case, your contributions would be a state tax deduction but cannot be used as a federal deduction.
There are also two types of 529 plans and not all states have both. There are advantages and disadvantages to the different plans, so it's important to understand the rules that regulate each. Before jumping into a 529 plan, understand the guidelines for your state and the type you choose.
Each state is also allowed to have different rules. For example, some states let you deduct contributions and others do not.
Prove you have a "tax home" to avoid being taxed on travel nurse reimbursements
Travel nurse reimbursements are stipend payments made to travel nurses to help pay expenses while they travel.
To avoid being taxed on this money, you must meet the requirements that prove to the IRS that you have a "tax home." If you can't, you will be taxed on the stipend payments.
It is up to the travel nurse to have the documents that prove your tax home, not the travel nurse agency.
Tax Tips for Nursing Students
It can be intimidating if you are a student and have never filed taxes before. But you can take steps to lighten your load and maximize your possible refund.
There are two ways to lower your taxes — credits and deductions. The IRS treats these as two different strategies. You can sometimes use both strategies, but they reduce your tax burden in two different ways.
A deduction lowers your taxable income, but it does not directly lower your tax. In other words, it lowers how much of your income the government will tax. The impact it has on your tax bill depends on the tax bracket in which you fall. However, a tax credit will directly reduce the amount of tax that you owe.
For example, you can either itemize your deductions or take the standard deduction offered by the IRS. The standard deduction is a no-questions-asked deduction you can take that reduces the amount of money the IRS will tax.
Let's say you made $50,000 and take the standard single deduction of $12,550 on your 2021 taxes. Your taxes are calculated on an income of $37,450 if you have no other deductions or credits.
If you itemize your deductions, it's important to save every receipt you might use. Which deductions you may consider depend on your filing status. For example, you may still be listed as a dependent on your parent's taxes. They can claim you if you are under age 24, a full-time student, and provide the majority of your financial support.
It's important to note though that most students take the standard deduction, so saving receipts might not be helpful for you unless your parents itemize.
The other option to lower your taxes is tax credits. If you qualify for one of the education tax credits, such as the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit, it cuts the amount of taxes that you pay.
For example, if you owe $3,000 in taxes but qualify for the $2,500 AOTC, it reduces your taxes by the credit amount, so you would owe $500 in taxes. Students can only claim one of the education credits.
It may be beneficial to speak with a tax professional to determine which strategy, deductions or tax credits, can get you the maximum amount for your filing status.
Also, since college students usually have simple taxes and earn less than $75,000 a year, they qualify to use the IRS Free File.
Scholarships and Loans
Apply for nursing scholarships to help pay for your nursing program. Not only is this money you don't pay back, but it is typically tax free.
There are two types of student loans for nurses you may have while in school. In the first, the government subsidizes the interest payments until you begin paying off the loan after graduation.
In the second type, the interest starts accruing the minute you sign the loan papers. However, you don't pay on the loan principal until after you graduate.
You have a choice of deferring these interest payments, which go on to accumulate and add to your loan repayment. You may also make payments on the interest immediately.
By making interest-only payments while in school, you prevent the interest from accumulating on the loan and can deduct the interest payments.
- Tax deductions help lower your adjusted gross income, which can lower the amount of taxes you pay.
- You can take the standardized deduction or itemize each of the expenses. You won't know which is better until you've done the math.
- The Tax Cuts and Jobs Act in 2020 eliminated many of the miscellaneous deductions that had been available, such as for uniforms, work shoes, union dues, and subscriptions to professional journals. Some states continue to allow for some of these deductions.
- Other strategies to lower your tax bill include maxing out your retirement plan contribution, considering commuter benefits, and adding to your HSA or flexible savings account.
- Nursing students should know their filing status, understand the tax credits available, and keep documentation on deductible expenses, such as tuition and student loan interest. They can also apply for scholarships and submit their taxes using the IRS Free File program.
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