What Tax Benefits Can I Claim as a Registered Nurse?
Disclaimer: The information shared here is for your research on tax law or to discuss with your tax preparer. It’s not an endorsement or recommendation for a specific tax plan.
As a healthcare worker, you can get tax benefits based on your job. By organizing your receipts and understanding deductions, you might be surprised at how your tax forms turn out.
Many people don’t like doing taxes. It can affect your mood. Let’s make things better by learning about tax deductions and benefits that can lower your tax bill this year.
Which Deductions Can Nurses Use?
Taxes are money you pay from your income to fund public services like emergency responders. The amount you pay depends on how much you earn. Deductions can lower what you owe by reducing your taxable income.
For example, if you donated $3,000 to charity last year, you might take away $3,000 from your taxable income. This can lower the amount you pay in taxes and even change your tax bracket.
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Nurses have access to several deductions, but you need to know about them. You can take a standard deduction or itemize your deductions based on what benefits you the most.
Standard Deduction vs. Itemized Deductions
If you choose the standard deduction, you won’t list specific nursing-related deductions. This might be better if you don’t have enough deductions to make a big tax difference. You won’t know which option is better until you do the math. To make sure you get the best benefits, use these tips to collect your receipts. The money you spent on nursing and other expenses might save you more than you think.
Common non-nursing expenses can be deductions on your taxes. There might be others. It’s best to work with a tax expert to make sure you include everything.
– Mortgage interest
– Medical expenses over 7.5% of your income; like prescription glasses, hearing aids, dental work, and insurance you paid
– Property taxes
– State and local income taxes
– Some child or dependent-care expenses
Even without detailed deductions, you can still reduce taxes. They go on a tax form section called “above-the-line” deductions. These include:
– Tuition and fees for higher education
– Interest on student loans
– Deductions for self-employed people
– Alimony payments
– Contributions to a Health Savings Account (HSA)
– Contributions to an Individual Retirement Account (IRA)
– Educator expenses
– Charitable donations
The money you spend on your job or nursing license can be deducted from your income. You need to think about these to choose between standardized and itemized deductions. However, some past nursing deductions now fall under “miscellaneous deductions.” These changed with the Tax Cuts and Jobs Act.
Many deductions that used to be 2% of your income are gone. These included deductions for:
– Uniforms
– Work shoes
– Tools like stethoscopes
– Union fees
– Subscriptions to nursing journals
In 2021, you can use these deductions only if you’re in the Armed Forces, a performing artist, a state or local government worker, or have work-related expenses.
Some states still allow a few of these deductions, but they lower state taxes, not federal taxes.
For example:
– Buying and cleaning your own uniforms
– Paying for nursing education credits
– Travel expenses to patients’ homes
– Paying dues to a nursing union
– Licensing fees
– Insurance premiums
– Conference fees and journal subscriptions
– Moving expenses over 50 miles for a new job
Use These 5 Strategies to Pay Less in Taxes
– Put more money in your retirement plan
– More retirement money can lower your income and taxes. This works best if you have a traditional 401(k) or IRA, not a Roth IRA or 401(k).
– Add money to your Health Savings Account (HSA)
– Money in an HSA is for medical expenses, so it’s tax-free. If you can’t use an HSA, a flexible savings account helps with healthcare or dependent-care costs.
– Use commuter benefits
– Ask your employer for commuter benefits. This lets you use tax-free money for bus or train passes and parking fees.
– Save for your children’s college with a 529 plan
If you have kids going to college, investing taxed money now can grow more than in a savings plan. It’s not taxed on gains or withdrawals for education expenses.
There are two types of 529 plans, and not all states have both. They have different rules, so understand them before picking one.
Different states have different rules too. For example, some let you deduct contributions, and others don’t.
Prove Your “Tax Home” to Avoid Taxes on Travel Nurse Reimbursements
Travel nurse reimbursements are payments to help with travel expenses. To avoid taxes on this, prove to the IRS that you have a “tax home.” Otherwise, you’ll be taxed on the reimbursement.
The travel nurse, not the agency, needs to prove this.
Tax Tips for Nursing Students
If you’re a student and haven’t done taxes before, it can be overwhelming. But you can make it easier and get a good refund.
You can lower taxes with credits or deductions. The IRS treats these differently. Sometimes, you can use both, and they reduce your taxes in different ways.
A deduction cuts your taxable income, but it doesn’t directly lower your tax. It lowers the income the government taxes. How it affects your tax bill depends on your tax bracket. A tax credit directly reduces the tax you owe.
For example, you can use the standard deduction or itemize expenses. The standard deduction reduces what the IRS taxes.
Let’s say you made $50,000 and use the $12,550 standard single deduction in 2021. You’re taxed on $37,450 if you have no other deductions or credits.
If you itemize, save every receipt. Deductions depend on your filing status. If you’re under 24, a full-time student, and your parents support you, they can claim you.
Most students use the standard deduction, so saving receipts might not help unless your parents itemize.
You can also lower taxes with tax credits. If you qualify for education credits, like the American Opportunity Tax Credit or Lifetime Learning Credit, they reduce what you pay.
For example, if you owe $3,000 but get the $2,500 AOTC, you owe $500. Students can only use one education credit.
Talk to a tax expert to know which is better for you.
Also, since college students usually have simple taxes and earn less than $75,000 a year, they can use the IRS Free File program.
Scholarships and Loans
Apply for nursing scholarships to help pay for school. It’s free money and tax-free.
There are two student loan types for nurses. In one, the government pays interest until after graduation. In the other, interest starts right away but you don’t pay on the loan until after you graduate.
You can delay interest payments, but they add to your loan. You can also pay interest while in school and deduct it.
Summary
– Deductions lower your income and taxes.
– You can use the standard deduction or itemize deductions. Do the math to see which is better.
– The Tax Cuts and Jobs Act in 2020 removed many deductions, like for uniforms, shoes, and union dues. Some states still allow some.
– Lower your tax bill by max
ing out retirement contributions, using commuter benefits, and adding to your HSA or flexible savings account.
– Students should know their status, understand tax credits, and save receipts for deductions. They can also apply for scholarships and use the IRS Free File program.
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