Workamping Tax Implications
Disclaimer: Though I was an accountant and lawyer, I was neither a tax accountant nor a tax attorney. And the following is not legal or professional advice. The information below is based on personal research and you are advised to contact your own professionals for your situation. We can only address these complicated issues in general terms, and every situation is different.
If you find inaccurate information on this page, we welcome corrections through our Contact Page. All we ask is that you submit those corrections with appropriate statutes, code sections, or case law as back-up. Thanks!
If you decide to work on the road, what are some of the tax issues to consider?
Here we will address the following:
Taxability of your workamping income
Your status in the eyes of the "employer" and the IRS
Taxability of your provided ("free") campsite
Where you need to file income tax returns
Potential problems of filing state tax returns
Taxability of payments you receive from "employers"
As a general rule, if you receive cash or checks from an employer, those amounts are taxable (or at least reportable) ... with a couple of exceptions.
One exception to the "everything is taxable" statement would be an actual dollar for dollar reimbursement of expenses where you produce receipts and the employer reimburses you. Those payments from the employer would not be considered taxable.
Another possible exception would be "per diem" (per day) payments or "stipends" (fixed regular payments). For example, some employers pay stipends to reimburse you for fuel expenses if you are several miles from basic needs like groceries.
It gets really confusing as what and what is not reportable/taxable when talking about stipends. In the world of workamping, stipends are pretty small, so it's best to just include them in income. The tax effect won't be significant enough to worry about. If the stipends are large and there is a significant tax effect, I can pretty much assure you they would be taxable anyway.
When dealing with the taxation of income, always assume it is all reportable and taxable. Then figure out how it might not be and how you can prove it.
Your status in the eyes of the "employer" and the IRS
As a workamper, you will either be a volunteer, an employee, or an independent contractor.
The volunteer status is easy. If you are not receiving compensation beyond a campsite, some incidental perks, and maybe a small per diem or stipend for reimbursement of expenses, you are a volunteer.
The employee vs independent contractor status is a little more difficult. Here is the scoop directly from the IRS website Employee or Independent Contractor?.
Note: The following is written from the employer's point of view.
Whether someone who works for you is an employee or an independent contractor is an important question. The answer determines your liability to pay and withhold Federal income tax, social security and Medicare taxes, and Federal unemployment tax.
In general, someone who performs services for you is your employee if you can control what will be done and how it will be done.
The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These facts fall into three main categories:
1. Behavioral Control – Facts that show whether the business has a right to direct and control. These include:
Instructions - an employee is generally told:
when, where, and how to work
what tools or equipment to use
what workers to hire or to assist with the work
where to purchase supplies and services
what work must be performed by a specified individual
what order or sequence to follow
Training – an employee may be trained to perform services in a particular manner.
2. Financial Control – Facts that show whether the business has a right to control the business aspects of the worker’s job include:
The extent to which the worker has unreimbursed expenses
The extent of the worker’s investment
The extent to which the worker makes services available to the relevant market
How the business pays the worker
The extent to which the worker can realize a profit or loss
3. Type of Relationship – Facts that show the type of relationship include:
Written contracts describing the relationship the parties intended to create
Whether the worker is provided with employee-type benefits
The permanency of the relationship
How integral the services are to the principal activity
For a worker who is considered your employee, you are responsible for:
Withholding Federal income tax,
Withholding and paying the employer social security and Medicare tax,
Paying Federal unemployment tax (FUTA)
Issuing Form W-2, Wage and Tax Statement, annually,
Reporting wages on Form 941, Employer’s Quarterly Federal Tax Return.
Using the above criteria, it would be hard to fathom how any workamper could be an independent contractor. Almost all employers "control" the work to be done and how it is to be done.
However, it is less expensive for employers if they can classify workampers as independent contractors. And several employers walk that fine line basing their classification of workers as independent contractors on the temporary nature of the job and on an agreement stating the positions are independent contractor positions. But the agreement is only one factor in the ultimate determination as all the other factors must be taken into account.
If the employer incorrectly classifies a workamper as an independent contractor (they often do), they can be held liable for employment taxes that they should have paid plus interest and penalties. Fortunately, the workamper is not penalized.
Pros & Cons - Employee vs. Independent Contractor
So which is better for you, assuming you have a choice? Usual answer ... it depends. It depends on you and what you prefer given the following information.
As an employee, your paycheck will have income taxes, social security taxes, and Medicare taxes withheld. So that gross amount of income you were expecting is suddenly a bit smaller. But at least the employer is taking care of all that tax reporting. All you have to do is get your W-2 and file returns.
Also, as an employee, you may receive other benefits available to "regular" employees. And you would be covered by the employers workman's compensation if you were to get injured on the job.
And finally, if a campsite is provided to you, you won't have to report the value of it as income IF the "free" campsite meets the criteria discussed below.
As an independent contractor, you should receive a check for work performed from "Accounts Payable" just like any other vendor or supplier of the employer. You may have to submit an invoice depending on the employer (they would be wise if they required that).
Your check will be higher since it will be for the gross amount due with no withholdings. However, you will be responsible for paying quarterly estimates of income tax and you will have to pay self-employment taxes.
Also, you will not be covered under the employer's workman's compsensation plan.
You should receive a 1099-Misc for non-employee compensation for the payments you received. Of course, the employer is only required to issue a 1099-Misc if the total payments to you in the calendar year are at least $600. Even if your payments are less than $600 and you don't receive a 1099, that doesn't relieve you from reporting the income.
Tax Treatment - Employee vs. Independent Contractor
So, whether you are an employee or an independent contractor, you will have taxable income.
If an employee, you report your W-2 wages on page one of federal form 1040. If you can itemize deductions (not easy for most full-time RVers) using Schedule A, you may be able to deduct unreimbursed employee expenses to reduce taxable income.
If you are an independent contractor, things are a bit more complicated. You will typically report your income on Schedule C - Profit or Loss From Business.
Whether you know it or not, as an independent contractor you are now a business. An individual can be a business called a Sole Proprietorship, and if you have not formally established another type of business entity (i.e. Corporation or Limited Liability Company, etc.) and received a separate Taxpayer Identification Number, your Social Security Number is your Taxpayer Identification Number.
On Schedule C you will have the ability to show expenses incurred to generate the income indicated on your 1099-Misc. So your ability to offset income with "ordinary & necessary business expenses" may be better as an independent contractor.
Now, after those deductions, if your Schedule C shows a net profit of $400 or more, you have to file Schedule SE and pay self-employment taxes.
That is the government's way of collecting social security and Medicare taxes, since it was not withheld from your check as an independent contractor.
Now, the tough part. As an employee, you would pay half of the social security and Medicare taxes (7.65% of your wages) and your employer would pay the other half. As an independent contractor (self-employed), you have to pay all the social security and Medicare taxes (15.3% of your "net profit").
And, you would have to pay the self-employment tax even if you don't have enough income after deductions/exemptions to pay income tax!
Does your head hurt yet? Mine does.
In summary, you may not have a choice in your classification depending on the employer. But, hopefully, the above information will help you understand the differences and may even help you determine whether you want to accept a particular position.
Taxability of your provided ("free") campsite
This is always a big question on the RV forums. Is the value of my campsite taxable?
First, we have to break it down between work for private, for-profit entities versus work for governmental, charitable, and non-profit entities.
Private, For Profit Employer - You are an Employee
If you are working as an employee for a private, for-profit employer, there is a clear test to determine whether the value of the campsite they provide is taxable. If these conditions are met, it is NOT taxable and no tax form is necessary from the employer.
1) The campsite must be on-site at the employer's place of business.
2) Having you live on-site must be for the convenience of the employer.
3) Living on-site must be a condition to getting the position.
It is very important to get the employer to put these conditions in writing so you have documentation of the employer's position. It will just give you more to stand on if an audit were ever conducted.
But just because an employer gives you that in writing, it doesn't mean you are completely safe. Here are a couple of things that could go wrong.
First, if the employer deducts the cost of your site from its income, that is an indication that they attached value to your site and they should have given you a tax document (1099-Misc) for the value of the site to back up the deduction. In other words, if they have a deductible expense, then there had to be "income" to somebody - that means you.
There are numerous stories of people getting 1099s they weren't expecting for the value of their campsites. My guess is year-end discussions with accountants lead to deductions and corresponding 1099s.
Second, if it is determined that other employees that DO NOT live on-site were performing the same duties as you, the "living on-site as a condition of employment" condition fails. If local folks can do the same job, clearly it is not necessary for you to live on-site to do it.
If the test above is not met, the IRS will consider your "free" campsite to be part of a "barter" transaction. That means you are trading your services for a campsite in lieu of cash. According to the law, you are required to report the value of the campsite as income just as if you had received cash. This is true even if the "compensation" is both a campsite and cash - the value of the campsite is still taxable along with the cash.
Now the odds of an audit are very slim and chances are the value of your site will not be enough to trigger any big problems. But your knowledge of the rules will provide you greater protection.
Private, For Profit Employer - You are an Independent Contractor
While the test above clearly applies to W-2 employees, it is not so clear as to whether it applies to 1099 independent contractors.
While it would seem that the employer requirements to "live on-site" "as a condition of employment" would be exercising too much control in opposition of the definition of "independent contractor", what if those are contractual requirements in order to get the job?
What if the employer has a job to be done by independent contractors and a condition for getting the "contract" is to live on-site for the convenience of the employer? I think a pretty good argument could be made that the same test as for an "employee" should apply.
However, I don't know of any legal precedents that address this situation. So, perhaps the safe approach may be to get the employer to declare a value for the campsite in your contract and report it as income on your Schedule C whether or not they give you a 1099.
Governmental, Charitable, or Non-Profit Employer
Now if you are a volunteer for a governmental, charitable, or non-profit entity, the rules are hard to find. In fact, I couldn't find any reference at all anywhere. So I just called the IRS directly when this situation arose for us.
In a half hour conversation with the IRS, I talked to three people. The first question they all asked me was "Did you get a 1099?" So, apparently, they put heavy, heavy weight on whether a 1099 is issued. I can see why most people say "No 1099, not taxable". :)
In the end, the IRS told me that the same rules that apply to private employers also apply to government and non-profit "employers".
That makes sense if you are receiving wages as an employee, but according the people I spoke with, the same test applies to volunteers as well.
So, the value of the campsite provided to you as a volunteer is not taxable if all of the following conditions are met:
1) It is located at the place of employment
2) It is provided for the convenience of the employer
3) Living on-site is a condition of getting the postion
Now I know that each time you call the IRS and ask them about this issue, you may get a different answer. And though what I am about to say is not technically 100% correct, I am willing to stick my neck out.
If, when volunteering, you don't get a 1099 for the value of your campsite from the government, charitable, or non-profit entity, don't worry about it too much.
Where do you file income tax returns?
If your income and age meet the following guidelines, you have to file a federal income tax return.
For 2011 tax returns, individuals younger than age 65 must file if they make at least:
$9,500 as single filers.
$12,200 as head of household filers.
$19,000 as married couples filing jointly and both husband and wife are younger than 65.
The earnings threshold amounts go up a bit for older (65-plus) individuals:
$10,950 for single filers.
$13,650 for head of household filers.
$20,150 for married couples filing jointly where one spouse is age 65 or older.
$21,300 for married couples filing jointly where both partners are 65 or older.
Now, it's always a good idea to file a federal return if you worked as an employee had income taxes withheld from you paychecks.
And, even if you don't meet the income threshholds listed above, it is mandatory that you file if you worked as an independent contractor and your total "net profit" for the year was over $400. You will have to file Schedule SE and pay self-employment taxes. And you will likely have to make quarterly estimated tax payments the following tax year.
Now things get a bit more complicated.
As a workamper, you will have to file a return in the state you worked ... IF that state has an income tax AND your income earned in that state exceeded the filing requirement threshholds of that state.
You will also have to file a return in your residence state ... IF that state has an income tax AND your total income for the year in all states exceeded the filing requirement threshholds of that state.
Here are the states with no income tax:
New Hampshire and Tennessee do not tax wages or self-employment income, but they do have an income tax on interest and dividends. However, for workamping income purposes, they can be grouped with the "no income tax" states.
To avoid filing state income tax returns, many full-timers choose a residence state without income tax and then only work in that state or other states without income taxes.
That approach avoids many of the pitfalls that can come from filing state tax returns. And that's the next topic of discussion.
Potential problems in filing state tax returns
The intent of all states on taxation is pretty clear. However, the application of that intent can get messy.
First, let's look at some terminology as it relates to workamping and taxes.
Residence State - This is the state that you have chosen as your residence as a full-timer.
Non-Residence State - This is a state in which you workamped during a year that is not your residence state.
Part-Year Residence State - This is any state in which you were a resident for part of the year (i.e. you started the year as a resident in one state, became a full-timer, and changed residence during the year).
Since the "no income tax" states listed in the prior topic do not really present much of a problem, this discussion will only apply to states that have an income tax.
The General Rules
You report ALL your income for the year (including investment income, pensions, wages, business income, etc.) in your residence state via a Resident return.
You report all your income earned in a non-residence state on a Non-resident return for that state.
You will be able to deduct the income earned in other states on your Resident return OR you will be able to take a credit for the taxes you paid in other states. That way you are not double-taxed.
Potential pitfall #1: Some states' Non-resident returns are complicated and the non-resident state may try to tax your total income by mistake. Usually, it can be worked out since the state really just wants to tax the income you earned in their state, but it may be quite an ordeal.
Potential pitfall #2: Some states may require you to indicate the length of time during the year you worked and resided in their state. Depending on their rules for residency, they might try to claim you as their resident and thus attempt to tax your entire income along with your residence state.
But if all goes as it should, you simply file a Resident return in your residence state and Non-resident returns the states in which you workamped. You pay the non-resident states their taxes and you take a deduction/credit on your Resident return so you are not double-taxed on the same income.
Note: Some states with income taxes have reciprocal agreements with other states with income taxes. This is a good thing.
If your state has a reciprocal agreement, you might be able to avoid filing a return in the state in which you worked. In other words, the states have agreed that the residence state will tax all income (even if earned in the reciprocal state) and no return needs to be filed in the non-resident state.
However, if you had tax withheld in the non-resident state and expect a refund, you will still need to file a return in that state in order to get that refund.
So, if you live in an income tax state, check to see whether they have reciprocal agreements. It might help decide where you want to workamp.
The biggest potential problem exists in two situations.
1. You change residence states in mid-year.
2. You live and work in a single non-residence state for several months.
Changing Residence in Mid-Year
Why is this a potential problem in filing state income tax returns? Well, chances are the state you are moving from and the state you are moving to may have completely different tax rules for Part-year residents. And, as a Part-year resident, you have to report ALL your income in both states.
Although they try to pro-rate your income so each state gets only its fair share, their pro-ration might result in double taxation of at least some of your income.
Some states pro-rate your total income based on where the income was earned during the year. But some pro-rate based only on the number of days you were a resident in each state.
For example, if all income was earned in the first three months in one state (a "where the income is earned" state), and then you earned no income in the last nine months after switching states (a "number of days in the state" method), you could be paying taxes in both states on the same income.
Be very careful about switching residences in mid-year, expecially if both states have an income tax.
Working In A Non-resident State For Several Months
For tax purposes, there are some states that will claim you as a resident if you worked in their state more than half the year. Some will claim you as a Part-Year resident for tax purposes if you work there for only three, four, or five months. That's a problem.
You could have two states claiming you and you could end up in court if you don't file in both states. It might get worked out financially, but the court appearances and mental anguish are not worth the risk.
Even if your residence state is a "no income tax" state, this could have a devastating effect. You likely chose a "no income tax" state as your residence to avoid income taxes. If an income tax state claims you based on this "over half year" or "x number of months" statute on their books, it could cost you big time if you have to report all your income including investment, pension, and other income.
Avoiding The Workamping Taxation Pitfalls
Whew! This workamping thing is starting to sound like more of a pain than it is worth.
How do full-timers deal with all of that? The short answer is they just do. They do whatever it takes to live on the road.
But if you want to minimize the headaches as much as possible, here are some things to consider.
Work only as a volunteer if it's financially feasible
Become a resident of a "no income tax" state
Workamp only in "no income tax" states
Get written agreements that address duties, classification as employee or independent contractor, and taxability of "free" campsites
If planning to work in a non-residence state for three months or more during a tax year, know that state's potential for claiming you as a resident or part-year resident for tax purposes
Check out your workamping state's income tax rates and filing requirement threshholds
Of course, the above suggestions may not be possible for you. But armed with the knowledge above, perhaps you can avoid some pitfalls, anticipate potential problems, and improve your workamping experiences.
Check out the following links for some less "taxing" topics.
What are the types of jobs available?
What kind of commitment is required?
How much can I expect to earn?
What if I just want to volunteer for a campsite?
What are the Pros & Cons of working for pay vs. volunteering for for a site with no pay?
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