Tax Reform Update

Last Update: April 3, 2025

For most healthcare travelers, the news remains relatively steady. Tax policy changes in recent years haven't significantly altered the core financial advantages of traveling versus permanent staff roles. Agency compensation structures—particularly tax-free stipends for housing and meals—are still intact and remain a cornerstone of traveler income.

Standard Deduction & Take-Home Pay

Single travelers who do not itemize deductions in 2025 will continue to benefit from the higher standard deduction. The IRS standard deduction for single filers in 2025 is $14,600, up from $12,000 in 2018. While personal exemptions remain suspended (as per the 2017 Tax Cuts and Jobs Act), most travelers will see a modest increase in take-home pay due to the standard deduction increases and inflation adjustments to tax brackets. The change, however, is subtle on a weekly paycheck—likely less than $10/week for most.

Itemizers See Limitations

Travelers who itemize are still facing reduced deduction opportunities. Many of the itemized deductions removed or limited by the 2017 tax overhaul are still in place in 2025:

• Mileage deductions for unreimbursed employee business expenses (e.g., travel between housing and worksites) are still gone for W-2 employees. You can no longer deduct mileage that exceeds your agency’s travel stipend.

• M&IE (Meals and Incidentals) deductions are also no longer available for W-2 travelers. Previously, you could deduct the difference between what your agency paid and the IRS per diem maximums. This is still off the table in 2025.

• Other unreimbursed job-related expenses like scrubs, licenses, CEU fees, and professional association dues (e.g., PanTravelers membership) are still not deductible for W-2 employees.

What You Can Still Get

Tax-free stipends (for housing, meals, and travel) remain protected for qualifying travelers who maintain a legitimate tax home and meet IRS guidelines. These stipends are not considered taxable income, preserving one of the biggest financial advantages of being a healthcare traveler.

W-2 vs. 1099: The Contractor Question

The idea of switching from W-2 employee status to 1099 independent contractor remains appealing to some, especially given the continued eligibility of independent contractors to deduct business expenses like mileage and M&IE. However, practical and legal challenges remain:

• Most staffing agencies do not offer 1099 arrangements due to liability and compliance issues (e.g., workers’ comp, unemployment insurance, and IRS scrutiny).

• Many hospitals and vendor managers specifically prohibit independent contractor staffing in their contracts, leaving limited room for travelers to pursue this route.

• While the 20% pass-through deduction (Section 199A) is still available for some types of self-employed taxpayers, healthcare professionals—especially those offering personal services—often fall into restricted categories. Unless operating as part of a larger entity with qualifying income structures, many travelers may not benefit.

Rare Exceptions

There is a small number of 1099 travelers who work through boutique agencies or contract directly with facilities. These individuals may still benefit from:

• Mileage and M&IE deductions on Schedule C

• Section 199A pass-through deduction in some cases

• Greater control over their business finances, but with added responsibilities

Fewer still are those who have created their own staffing agency to bypass middlemen. This has become increasingly difficult with the rise of Vendor Management Systems (VMS) and Managed Service Providers (MSP), which control access to facility contracts.

In Summary:

• Most travelers will see no significant change to their net take-home pay from recent tax updates.

• The majority of itemized deductions lost in 2018 remain unavailable.

• The W-2 vs. 1099 debate is largely academic for most travelers due to legal and contractual barriers.

• Tax-free stipends remain the most valuable financial advantage for healthcare travelers.

We’ll continue to monitor IRS guidance and congressional updates that may impact traveler compensation or classification.

Prior update: January 1, 2018

For most travelers, the news is OK. It doesn’t impact the decision to be a traveler versus staff. Current compensation schemes by agencies have not changed. So no one’s take-home pay from agencies will drop.

Single travelers who don’t itemize will see a net gain of $1,650 not subject to federal income tax because of the net changes to the standard deduction and personal exemption total. That is around a $400 annual increase in take-home pay. That might be a bit of shrug for most as it will be all but unnoticeable on a weekly basis (about $8/week).

Some travelers who itemize will lose out, especially if they were accustomed to claiming certain deductions usually only familiar to a tax professional who specializes in healthcare travelers. The rules have changed for a couple of items. One is the ability to deduct mileage costs based on IRS allowable amounts (53.5 cents in 2017) if it exceeds the travel allowance from your agency - as it usually does. Some travelers also deduct the commute mileage from the remote housing to the remote workplace. That is also gone.

The other important item for travelers who itemize are M&IE, or meals and incidentals, sometimes called per diems.  If an agency does not pay the maximum allowable amounts (per this .gov site), previously you could deduct the difference. That is gone.

There are a number of other federal return deduction reductions that have made news including limits on mortgage interest deductions, contributions to charities, and local and state taxes. Also unreimbursed miscellaneous business deductions such as scrubs and professional associations (including PanTravelers) and licenses/certifications. However tax-free reimbursements (technically what tax free stipends such as housing and per diems are called by the IRS) from agencies can continue.

These itemized reductions affect travelers and staff equally, so they should not change the financial calculus to be a traveler versus staff.

This article will be updated as the actual bill is analyzed further, and the IRS adopts rules to implement it. That could take us a few months into 2018 before everything is clear.

One item that has met with much news coverage is how changing your tax status from an employee to an independent contractor can provide a new reduction in taxes. And indeed that could lower your tax bill and increase your after-tax net income. However, service companies are generally excluded, and it is not clear if the same is true for healthcare travelers (who seem to fit that category as a business rather than an employee).  It does seem unlikely as physicians are on the excluded list. When the IRS crunches the new tax bill, their new regulations should make it clear.

There are other practical impediments for independent contractors. Few agencies allow reporting on an IRS 1099 form (revenue) for an independent contractor (a “pass-through” tax structure) versus a regular employee W-2 (income). Many facility or vendor manager contracts specifically disallow the use of independent contractors. There are a number of legal issues related to agencies and hospitals that discourage the use of independent contractors, from workers compensation, to unemployment, to IRS audits of agencies that use independent contractors (generally found to be legal from a tax court perspective for travelers, but still a costly legal hassle for the smaller agencies who might use independent contractors).

Taking an independent contractor path is difficult and most travelers will find it impractical.

That said, there are a small number of 1099 travelers, and they do benefit versus W-4 both before and after the 2017 tax bill. They will still be able to take mileage and M&IE deductions first dollar before it is passed through to their 1040 return. 

There are even fewer travelers who have set up their own agency to bypass the middleman and contract directly with hospitals. This has become much harder with the rise of additional middlemen in the form of vendor managers who handle all contracts with agencies.