Ask A Nurse: What Tax Benefits Can I Claim As A Registered Nurse?

This is general information to help you research the tax rules or talk with your tax preparer. It is not tax advice or a recommendation of any particular plan.

Healthcare work comes with several tax-saving opportunities. Pull your receipts together and understand which deductions apply, and the number at the bottom of your return may surprise you.

What Deductions Can Nurses Use?

Taxes are charges on your income, based on a percentage that depends on your bracket. You lower them by lowering your taxable income through deductions. Give $3,000 to charity, for example, and you may be able to subtract $3,000 from your taxable income, which can drop both your tax and possibly your bracket.

The government lets you take the standard deduction or itemize. Which one wins depends on how many deductions you have, and you won't know until you do the math.

Standard vs. Itemized Deductions

Take the standard deduction and you skip the specific nursing-related write-offs. That's often the better move if you don't have enough deductions to clear the standard amount. To find out, gather your receipts and total your nursing and non-nursing expenses first.

These common non-nursing expenses qualify as itemized deductions:

• Mortgage interest
• Unreimbursed medical expenses above 7.5% of your adjusted gross income, which 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, partially deductible

Some expenses help even if you don't itemize. They go on Schedule 1 and are sometimes called "above-the-line" deductions:

• Higher education tuition and fees
• Student loan interest
• Self-employment deductions
• Alimony
• Health savings account (HSA) contributions
• Individual retirement account (IRA) contributions
• Educator expenses
• Charitable contributions

Here's the catch for nurses. Many job-related deductions that used to fall under "miscellaneous deductions" were eliminated by the Tax Cuts and Jobs Act of 2017. Deductions once allowed as 2% of your adjusted gross income, including uniforms, work shoes, stethoscopes and other required devices, union dues, and professional journal subscriptions, are gone at the federal level. They survive only for a few groups: Armed Forces reservists, qualified performing artists, fee-based state or local government officials, and people with impairment-related work expenses.

Some states still allow versions of these, which can cut your state tax even though they no longer touch your federal taxable income:

• Buying and cleaning uniforms your employer doesn't provide
• Travel between patients' homes from one assignment to the next
• Dues to a nursing union or professional organization
• Professional license fees
• Professional or malpractice insurance premiums
• Conference registration and professional journal subscriptions

Five Strategies to Lower Your Taxes

Max out your retirement contributions. The more you put into a traditional 401(k) or IRA, the lower your taxable income. This doesn't apply to a Roth 401(k) or Roth IRA.

Add to your HSA or flexible savings account. HSA money is pretax and set aside for medical expenses, so it isn't taxed. If you don't qualify for an HSA, a flexible savings account can do the same for healthcare or dependent-care costs.

Use commuter benefits. Ask your employer to set up commuter benefits so you can pay for transit passes or parking with pretax money.

Fund a 529 college plan. Money in a 529 grows faster than in a savings account, and gains and withdrawals are tax free when used for qualified education expenses. Note the caveats: 529 contributions are a state deduction, not a federal one, there are two plan types and not every state offers both, and each state sets its own rules. Understand your state's rules before you commit.

Prove a "tax home" if you're a travel nurse. Travel nurse reimbursements are stipends meant to cover expenses on the road. To keep them tax free, you have to meet the IRS requirements that prove you have a tax home. If you can't, the stipends get taxed, and it's on you, not the agency, to hold the documents that prove it.

Tax Tips for Nursing Students

Filing for the first time is intimidating, but a few steps maximize your refund. There are two ways to lower your taxes, and the IRS treats them differently.

A deduction lowers your taxable income, so its value depends on your bracket. A credit lowers your tax bill directly, dollar for dollar.

For deductions, you either itemize or take the standard deduction, which is a no-questions-asked amount that reduces the income the IRS taxes. Say you made $50,000 and take the standard single deduction of $12,550 on your 2021 taxes. With no other deductions or credits, you're taxed on $37,450.

If you itemize, save every receipt, and know your filing status. Your parents can claim you as a dependent if you're under age 24, a full-time student, and they provide most of your support. Most students take the standard deduction anyway, so saving receipts usually only helps if your parents itemize.

For credits, the education credits do the heavy lifting. The American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit cut your tax directly. Owe $3,000 in taxes but qualify for the $2,500 AOTC, and you owe $500. You can only claim one education credit. Talk with a tax professional to see whether deductions or credits get you more for your filing status. Students with simple returns and modest income also generally qualify for IRS Free File.

Scholarships and Loans

Apply for nursing scholarships. The money isn't paid back and is usually tax free. As for student loans, there are two kinds. With a subsidized loan, the government covers the interest until you start repaying after graduation. With an unsubsidized loan, interest accrues from the day you sign, though you don't pay principal until after you graduate. You can defer the interest and let it pile onto your balance, or pay it as you go. Paying interest while you're in school keeps it from compounding and lets you deduct those interest payments.

Key Points

• Deductions lower your adjusted gross income, which can lower your tax.
• You can take the standard deduction or itemize. You won't know which is better until you do the math.
• The Tax Cuts and Jobs Act of 2017 eliminated many miscellaneous federal deductions, including uniforms, work shoes, union dues, and journal subscriptions. Some states still allow versions of them.
• Other moves: max out retirement contributions, use commuter benefits, and fund an HSA or flexible savings account.
• Students should know their filing status, understand the education credits, document deductible expenses like tuition and student loan interest, apply for scholarships, and look into IRS Free File.