Becoming a Locum Tenens Physician is ideal if you want to take your work across the country. You’ll be in a position of greater work flexibility, be able to explore different states and cities and be covered for your work-based transport and accommodation as you go.
Though you’ll be working all over the map, you will have to maintain a permanent ‘home’ for tax reasons.
So, if you’re fresh out of residency and on the road, how do you go about registering a permanent tax home?
Becoming a domicile of a state doesn’t mean you need to own a home
When you’re registered permanently in a state, we call this domicile. Being a domicile differs from being a resident – it’s possible to have multiple residences in different states but only be permanently registered in one.
The reason you need to have a domicile state is that the US legal system revolves around citizens having a fixed location. We’re required to have a permanent address to do all sorts of things, such as:
- Obtain a driver’s license and passport
- Pay taxes
- Register to vote
- Register for insurance (health, auto, etc)
- Register your vehicle
- Own and register a business
The domicile state you choose will be where you’ll register for all of these things.
Why choose a domicile state? Don’t I already live in one?
If you’re a Locum traveling for work and you have a permanent address to come back to, it makes sense for that state to be your domicile state, especially if your friends and family live there, too.
That being said, it may not always be advantageous to keep that address as your permanent one, and you’ll still need both a street address and mailing address to forward your mail to as you travel.
There are a couple of reasons you may want to choose another domicile state:
– Tax may be higher in your home state: A pretty simple one. If you’re paying more tax than you could be in another state (and you’re not living there to enjoy the benefits your state has to offer), it may be time to look at other options.
– Your family may actually live in a more advantageous state: I have a client who is moving from Pennsylvania to Florida, where he has family, to help him save on taxes. Where you choose doesn’t always have to depend on the tax consequences, though – don’t let the tax dog wag the tail, so to speak. If you’re already happy in a state and your support system is there, there’s no reason to choose a new tax home.
– Managing your affairs may become difficult: Single locums may choose friends’ and family’s homes as their permanent tax home, mainly because they can rely on someone to send mail and manage their requirements. We find that many Locums eventually change their domicile state if they’re away from home for a long period of time, as it can become a burden for loved ones to continue to manage their affairs from afar.
How do you choose a domicile state?
If you do have the desire and luxury to move, here are the big three considerations to factor in:
What is the tax situation like?
There are some states that don’t have an income tax (Alaska, New Hampshire, Tennessee, Florida, South Dakota, Nevada, and Texas), meaning you could make a huge saving if you domicile there. But there are also different rules on how pensions and investments are taxed in each state, which you will need to consider based on your situation.
What are the state rules on vehicle registration?
Vehicle insurance is something we experience every year, so you’ll want to look for a good spot to both register a vehicle and find advantageous insurance rates. Some states will also require vehicle inspections, meaning you’ll have to return more often to your domicile state. This could cause unnecessary stress if you’re far away.
How is the health insurance?
Medical insurance varies quite drastically from state to state, so it’s important to assess your options, especially if you have an ongoing condition or treatment you need coverage for. Take particular notice of medical plans as you may struggle to find a plan that covers you nationwide. Many health insurance plans only cover a small area of your home state, so if you’re regularly far away from home, it’ll be useless to you. You may want to consider choosing a state that is closest to where you’re spending the majority of your time.
Though these are the big three points you need to cover in your decision-making, there are other questions you may want to ask as you choose your domicile. Is it easy to register to vote? Will you be in need of any other social services? Make a list of everything that needs to be accessible close by so that you do not find roadblocks down the line.
How will income tax work?
You will still have to pay income tax in the state where you work, even if you’ve moved to (or already live in) a domicile state where you’re not required to pay it.
Going back to the example of my current client, though he’s moving from Pennsylvania to Florida, he’ll be working in Indiana, Kentucky, and Tennessee. Tennessee doesn’t have an income tax, but Indiana and Kentucky do, so he’ll still have to pay income tax on the income earned in the states that have a state income tax.
If you’re domiciled in a state that requires you to pay income tax and working in another state where you have to pay it, too, it doesn’t mean you’ll pay double tax on the same income. Don’t worry! More often than not, your domicile state will give you a state tax credit for taxes paid to the other state.
OK. I know the state I want to make my domicile. Now what?
Now that you have decided which state you want to make your permanent residence in, you will need to do a few things in the eyes of the IRS to substantiate the change.
You will need to implement the following items in your new state:
- Change your mailing address to your new residence address. All your mail should be going to your new address.
- Register your vehicle
- Obtain a new driver’s license
- Register to vote in your new state
These are the major items you should consider changing as soon as you move to your new state.
You’re not the only person going through this.
Thankfully, you’re not the first, nor will you be the last person to need to choose a permanent tax home. We work with Locum Tenen healthcare providers who have been through the same decision process and have helped them choose a state that works best for them. If you’d like any help in going through the process, you know where we are!