Introduction
When you work as a traveling doctor, the lines between work and personal life often blur. Whether you're inside an emergency department, a hotel, or a rental car, these spaces can start to look the same no matter where you are. In fact, there are times when I even forget what state I'm in because every emergency room looks so familiar!
This consistency in your work environment presents a unique opportunity: the chance to live anywhere, without being tied to a specific location because of your job. The real question becomes not where you need to live for your work, but where you want to live for your life. It’s a mind-blowing option that many traveling doctors might not have considered. Your base location can be a place that caters to your personal preferences, interests, and lifestyle, instead of one dictated by your work. This blog post will explore the factors that can make a location the best base for a traveling doctor, such as income tax benefits, access to enjoyable activities, and proximity to major airports for easy travel.
Income Tax Considerations
As a traveling doctor, one of the most significant financial benefits you can take advantage of is choosing to base yourself in a state with no income tax or low tax rates. By selecting a location with favorable tax conditions, you can significantly increase your take-home pay, which is especially important when balancing the costs of frequent travel and maintaining a flexible lifestyle.
Here is a great article on Investopedia that can provide you valuable insight on taxes by states: State Residence for Tax Purposes: Rules by State. How to avoid income tax headaches if you moved or spent considerable time in another state during the year
Financial Disclosure:
I am not a CPA or financial expert. This is post for educational purposes only. The opinions expressed in this blog post are my own and are provided for informational purposes only. I’m not a licensed financial advisor, and the information shared here should not be considered financial, legal, or tax advice. Please consult with a qualified financial planner or tax professional before making any financial decisions. While I may discuss certain products, services, or financial strategies, it’s important to conduct your own research and consider your individual circumstances when making financial decisions.
States with No Income Tax: States like Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming have no state income tax. This means that the money you earn goes further, allowing you to keep more of your hard-earned dollars. Residents of New Hampshire are only taxed on dividends and interest income, while in Washington state, capital gains are only taxed for individuals in higher income brackets. For locums doctors, this can add up to substantial savings over time, especially compared to states with high-income tax rates.
Impact on Take-Home Pay: For example, living in a state like California or New York, which have high-income tax rates, can reduce your earnings significantly. In contrast, living in a no-tax state could save you thousands of dollars annually. For a doctor earning a good income, these tax savings can be redirected towards personal investments, travel expenses, or simply enjoying a higher standard of living.
Examples and Scenarios: Consider the financial impact of moving from a high-tax state like California to a no-tax state such as Nevada. Even if you continue to work the same number of shifts you did in residency, the savings on state income tax can be substantial. California's state income tax rate can go up to 12.3%, which could represent a large portion of your income. By relocating to a no-tax state such as Nevada, you could potentially save up to six figures in taxable income annually. These savings can cover all your essential living expenses, including housing and transportation, allowing you to live comfortably off the tax savings alone. This gives you the freedom to invest the rest of your income as you see fit, whether that's building wealth, enjoying life, or accelerating your path to financial freedom. However, to do this you would have to completely leave the state and cut ties with California.
Obviously where you decide to live is an incredibly personal decision and depends on many factors. I present these options only to give some perspective on other locations you may not have considered. And perhaps you’d prefer to live in a certain high cost of living state in the future, but you may need to live and generate revenue in a state with a lower income tax for a few years, especially in the beginning stages of your career to kick start your financial goals.
Here are a few more things to consider as a travel worker:
The 183-day rule
The 183-day rule is a guideline many states use to determine residency for tax purposes. If you spend 183 days or more in a state during a calendar year, that state may consider you a resident for tax purposes, even if your primary home or domicile is in another state. Here’s how it generally works:
Key Points of the 183-Day Rule:
• Primary Domicile vs. Statutory Residency: While your domicile is where you intend to live long-term, a state can still claim you as a statutory resident if you spend at least 183 days there in a given year.
• Full Tax Liability: If a state considers you a resident under the 183-day rule, you may be required to pay state income taxes on all of your income, regardless of where it was earned (even if you earned it in another state).
• Tracking Days: States typically require you to track the number of days spent in the state, including part-days. You may need to provide proof, such as receipts, travel records, or other documentation.
States That Use the 183-Day Rule:
States like New York, California, New Jersey, Massachusetts, and others use this rule to determine whether you owe income tax as a resident. It’s crucial to be mindful of this rule, particularly if you split time between multiple states.
Certain States With Aggressive Tax Policies:
California
California is known for having a particularly aggressive tax system that can follow you even if you leave the state, under certain circumstances. Here are some key points to consider:
• Residency Status: If you are still considered a California resident, you are required to pay state income tax on all your income, regardless of where it was earned. California has strict rules for determining residency. If you maintain strong ties to the state (e.g., owning property, keeping a California driver’s license, or frequently returning), you could be classified as a resident even if you work elsewhere.
• Part-Year Residency: If you moved out of California partway through the year, California will still tax you for the portion of the year you were a resident.
• Non-Resident Income: If you’re a non-resident but still earn income from California sources (e.g., rental income, business income, or wages earned within the state), California taxes that income. However, income earned outside of California may not be subject to California state tax.
• Domicile Considerations: California may claim you as a resident if you don’t clearly establish residency in another state or if your ties to California remain strong. Simply working out of state may not be enough to avoid California tax.
• Tax Agreements: If you work in multiple states, it’s essential to consider how tax agreements between states might affect your tax obligations. Some states have reciprocal agreements that can reduce tax burdens, but California does not participate in these agreements.
Source: California Tax Residency Rules
New York
• Domicile Rule: New York is well known for its stringent residency rules. If you are considered a resident or “domiciled” in New York, the state can tax your worldwide income even if you’ve moved elsewhere. Like California, New York looks at factors such as where your family lives, the location of your primary residence, and the amount of time you spend in the state.
• Statutory Residency: Even if you claim residency in another state, New York may still tax you if you maintain a residence in New York and spend 183 days or more in the state within a year.
Source: New York Tax Residency Rules
New Jersey
• Income Earned in the State: If you leave New Jersey but continue to earn income from a New Jersey source (e.g., wages from a New Jersey employer or rental income from property in the state), New Jersey can tax that income. They also have strict residency rules and require clear evidence of establishing a new domicile elsewhere.
Source: New Jersey Residency Guidelines
Massachusetts
• Non-Resident Income: Massachusetts will tax you if you earn income from a Massachusetts source, such as a business, rental property, or work performed in the state, even if you no longer reside there.
• Part-Year Residency: Like California and New York, if you were a resident for part of the year, Massachusetts will tax your income for the period you were a resident.
Virginia
• Tax on Income Earned from Virginia Sources: Even if you move out of Virginia, income from Virginia sources (like a business or rental property) is subject to state tax. Virginia also aggressively audits those who move out, especially if there are still ties to the state, such as family, property, or financial accounts.
Source: Virginia Residency Guidelines
Connecticut
• Domicile and Statutory Residency: Connecticut has policies similar to New York’s, where they will tax your worldwide income if you maintain domicile in the state or meet the statutory residency requirement (i.e., spending more than 183 days in the state while maintaining a permanent home there).
Source: Connecticut Residency Guidelines
Pennsylvania
• Part-Year Residency: Like many states, Pennsylvania will tax you for the portion of the year you lived in the state. If you earn income from Pennsylvania sources after you move, it’s still taxable in Pennsylvania.
Get a good CPA:
It's crucial to understand that where you work and where you spend your time can have tax implications, particularly in terms of establishing residency. The rules around state income taxes can be complex, and it's essential to discuss these details with a qualified CPA to ensure you are optimizing your tax situation. If you don't have a trusted CPA, please feel free to reach out to me, and I can connect you with experienced professionals who specialize in working with locums doctors.
These are only a few of the things you must consider when doing locums. We will go into more detail in the next several blog posts.
Beware of Procurement
Navigating the locums landscape involves more than just picking the right location. One crucial aspect to be aware of is the procurement and name clearing processes used by some locum agencies. These practices can impact your career options and flexibility, so it's essential to be informed. I covered this in more detail about this in another post: Avoiding the Traps of Physician Procurement: What Every Doctor Needs to Know. Be cautious about sharing your personal information and ensure you understand these processes before committing to any agency as this could negatively impact you financially.
Are you curious about locums?
Direct message me on Instagram @theOverlandERtravel to see if locums is right for you! I’d be happy to discuss your goals and help you determine if this adventurous career path aligns with your aspirations without the fear of being procured by an agency.
Financial Disclosure:
This post is for educational purposes only. The opinions expressed in this blog post are my own and are provided for informational purposes only. I’m not a licensed financial advisor, and the information shared here should not be considered financial, legal, or tax advice. Please consult with a qualified financial planner or tax professional before making any financial decisions. While I may discuss certain products, services, or financial strategies, it’s important to conduct your own research and consider your individual circumstances when making financial decisions.
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