As a locum tenens provider, working in multiple states offers opportunities like higher pay, flexible scheduling, exploring new cities, or helping severely understaffed rural communities.
But with this flexibility comes a challenge many locum tenens physicians don’t anticipate: multi-state tax filing.
If you’re like most busy physicians, taxes probably aren’t at the top of your priority list. However, failing to plan for your tax obligations can lead to unexpected liabilities and unnecessary stress. The good news? You can stay compliant, maximize deductions, and keep more earnings with the right strategies.
Let’s get started.
Why Multi-State Taxes Can Be Confusing
Taxes are complicated enough, but locum tenens providers face additional challenges when working in multiple states. One of the most significant sources of confusion is determining where—and how much—you owe in state income tax.
For example, many providers mistakenly assume they don’t have to pay state income taxes if they live in a tax-free state. Unfortunately, that’s not always the case. Some states require you to file taxes even if you only worked there temporarily, while others allow credits to prevent double taxation. Understanding residency versus non-residency taxation is crucial to balancing your tax obligations.
Residency vs. Non-Residency Taxation
Most states require residents to pay state income tax and federal income tax. Residency for tax purposes is determined by:
- Domicile: Your permanent home or primary place of residence.
- Physical presence: The number of days you spend in a state. Many states follow the 183-day rule, meaning that if you spend at least half the year (183 days or more) in a state, you are considered a tax resident.
- Significant ties include owning property, having a driver’s license, or having other financial/legal connections to the state.
Knowing where you’re a tax resident is one thing—understanding how to pay taxes across multiple states is another. Your tax obligations depend on how long you spend in each state and where you establish residency.
Residency Taxation
If you spend 183 days or more in a state with an income tax, you are deemed a resident for tax purposes. This means you must pay state income tax on all your earnings, regardless of where you worked.
Example:
- You live in New York (a state with income tax).
- You take a one-month locum assignment in Tennessee (a state with no income tax).
- New York will still tax your Tennessee earnings as if you earned them in New York.
Non-Residency Taxation
You are considered a non-resident if you spend fewer than 183 days in a state. This means you only pay state income tax on income earned within that state.
Example:
- You live in Tennessee (a tax-free state).
- You take a one-month assignment in New York (a state with income tax).
- New York will tax only the income you earned while working there.
- Tennessee will not tax your remaining 11 months of income.
Important Note: Certain tax-free states have specific regulations that might still impact your tax responsibilities. Consulting a locum tenens CPA can help you ensure compliance.
How to Avoid Double Taxation
Warning: you could face double taxation on the same income if you’re not cautious. This situation arises when both your home state and a work state impose state income tax. Thankfully, many states mitigate this issue by offering tax credits for taxes paid to other states.
Most states prevent double taxation by providing a credit for taxes paid to another state. This credit lets you offset the taxes owed in your home state based on what you have already paid to your work state. Here’s how you can reduce your tax liability:
- Track your work locations diligently: Maintain records of where you worked, the duration, and the earnings.
- Check state reciprocity agreements: Some states have arrangements to prevent taxation on temporary work.
- Apply for tax credits: Your home state may permit you to offset taxes paid to another state.
Planning for Multi-State Filing
Now that you understand your residency and can monitor for double taxation, it’s wise to keep tracking the details of your assignments to maximize write-offs. Remember to document travel and business expenses by recording travel costs, lodging, licensing fees, and other work-related expenditures. These deductions can significantly reduce your taxable income.
If you have a home office dedicated to administrative tasks, a portion of your rent, utilities, and office supplies may qualify.
- Some straightforward ways to keep track of these expenses include:
- Using one credit card solely for business expenses and maintaining a separate business account.
- Using QuickBooks or similar software to manage expenses in real-time.
- Keeping digital or physical copies of receipts.
- Using MileIQ or a similar app to monitor mileage.
- Setting aside a day each month to update and track expenses.
However, if your busy schedule makes this overwhelming or time-consuming, you can consult a CPA specializing in locum tenens.
Why You Need a Locum Tenens CPA
Understanding multi-state tax laws can be complicated, but you don’t have to navigate it alone. A CPA specializing in locum tenens taxation can help:
- Ensure compliance with state tax laws
- Maximize deductions to lower your taxable income
- Prevent double taxation and help you claim the proper credits
- Handle complex filings so you can focus on your patients
Take Control of Your Taxes Today
By planning ahead, tracking your expenses, and working with a tax expert, you can lessen the stress of tax season and retain more of your hard-earned money. Schedule a consultation with The Doctor’s CPA today to receive personalized guidance and a tax strategy tailored to your locum tenens career.
Contact The Doctor’s CPA today for your free consultation.