Key Takeaways
- Hospital employees paid on a W-2 wage form can no longer deduct scrubs, license renewals, or driving between hospitals. A 2025 law made that change permanent.
- Hourly nurses gain the most from the new overtime deduction. It covers up to $12,500 a year of the extra half in time-and-a-half pay, from 2025 through 2028.
- Contract shifts reported on a 1099, the form used to pay independent contractors, allow a separate set of deductions. That income also brings self-employment tax and quarterly estimated payments.
- Georgia skipped the federal overtime deduction and created a smaller $1,750 state exclusion instead. Your federal and state returns will show different overtime numbers.
How to Claim Tax Deductions for Nurses
Every tax season, nurses ask us some version of the same question: can I deduct my scrubs? For most hospital nurses, the answer on the federal return is now no. That answer is often unexpected, because previously, you could.
The tax code changed how it treats an employee’s own work costs. Even so, nurses still have real tax breaks. They now come from overtime pay, contract shifts, travel stipends, and education costs. This guide covers each one as of October 2026.
Can W-2 Nurses Still Deduct Scrubs, Mileage, and License Fees?
Generally, no. The work costs an employee pays without being paid back are called unreimbursed employee expenses. Uniforms, stethoscopes, continuing education, license renewals, and a personal phone used for work all fall in this group. So does driving between two hospitals during the same workday.
The Tax Cuts and Jobs Act suspended the deduction for unreimbursed employee expenses for 2018 through 2025. The One Big Beautiful Bill Act, signed in July 2025, then made the suspension permanent.
Your daily commute is a separate matter. Driving from home to your usual workplace has never been deductible, whether you are an employee or self-employed.
If you are a W-2 nurse, your employer is now the main way to get work costs back. Some hospitals and agencies pay these costs back tax-free. They do this through an accountable plan, which means you turn in receipts and return any unused money. Many nurses ask human resources what the plan covers before paying for a license renewal or certification themselves.
Do Travel Nurse Stipends Count as Taxable Income?
Travel nursing agencies often pay part of your earnings as housing and meal stipends. That money is generally tax-free only while you work away from your tax home.
Your tax home is usually the area where you regularly work. If you have no regular workplace, it is typically where you live. For travel nurses, a key question is whether you keep paying for a permanent home while on assignment.
Without a permanent home, the Internal Revenue Service (IRS) may treat you as itinerant, meaning you have no tax home. In that case, your housing and meal stipends generally count as taxable pay, the same as your hourly wages. IRS Publication 463 explains how that decision works. Your CPA can check your housing costs and contracts against those rules before you take back-to-back assignments.
How Does the Overtime Deduction Work for Nurses?
For hourly nurses, the overtime deduction is likely the biggest new tax break from the 2025 law. It applies to tax years 2025 through 2028. Four rules decide whether you qualify and how much you can deduct:
- The deduction covers only overtime that the Fair Labor Standards Act (FLSA), the federal wage-and-hour law, requires your employer to pay. Pay required only by a state law or a union contract does not count. Salaried nurses who are exempt from FLSA overtime generally cannot use the deduction.
- Only the extra “half” in time-and-a-half counts. Your regular hourly pay for those hours is still taxed.
- You can deduct up to $12,500 a year, or $25,000 on a joint return. That limit shrinks once your income passes $150,000, or $300,000 for joint filers. The IRS uses modified adjusted gross income (MAGI) here, which usually equals the adjusted gross income on Form 1040.
- You can claim it whether you itemize or take the standard deduction. Married couples must file a joint return to qualify.
You claim it on the new Schedule 1-A, which is filed with your Form 1040. Starting with 2026 pay, your employer reports the qualifying overtime in Box 12 of your W-2 under code TT.
The deduction lowers federal income tax only. Social Security and other payroll taxes still apply to all of your overtime pay. If you filed a 2025 return without this break, your CPA can check whether an amended return makes sense.
What Is the Overtime Deduction Worth on a Real Paycheck?
A single nurse earns $40 an hour and $60 for each overtime hour. Only the extra $20 per hour counts toward the deduction. Over 300 overtime hours in 2026, that adds up to $6,000.
If that $6,000 would otherwise be taxed at 22%, the deduction could lower the federal bill by about $1,320. Your actual result depends on your tax bracket and on whether your W-2 reports the overtime correctly.
What Changes When You Pick Up 1099 Contract Shifts?
An agency or facility may pay you on a Form 1099-NEC, the version of the 1099 used for contractor pay. In that case, you are self-employed for that work. You report it on Schedule C, the form for sole-proprietor income and expenses. There, you can generally deduct ordinary and necessary expenses, meaning those that are common and helpful in contract nursing work.
For contract nurses, deductible costs often include:
- Scrubs and shoes required for the job and not suitable for everyday wear
- License renewals, certification fees, and continuing education tied to your current nursing work
- Professional liability insurance and nursing association dues
- Equipment and supplies bought for contract shifts
- Mileage between work locations, logged by date
Only costs tied to the contract work belong on Schedule C. Expenses for your W-2 job stay nondeductible, even in a year when you also have 1099 income.
The IRS mileage rate changed partway through 2026. Trips from January through June use 72.5 cents a mile, and trips from July through December use 76 cents. Logging the date of each trip shows which rate applies.
What Else Should Contract Nurses Plan For?
A home office can qualify, but only for your contract work. The space also has to be used regularly and exclusively for that business. Charting from a kitchen table generally does not meet that test. The IRS simplified method allows $5 per square foot, up to 300 square feet.
Health insurance is another possible deduction. Self-employed nurses who cannot get coverage through an employer, including a spouse’s employer, can often deduct their premiums.
Contract income also comes with self-employment tax. That income carries a 15.3% tax that replaces the payroll taxes an employer would otherwise split with you. Nothing is withheld from 1099 pay, so many contract nurses make quarterly estimated payments to avoid an underpayment penalty.
How W-2 and 1099 Nurses Compare
| W-2 hospital nurse | 1099 contract nurse | |
|---|---|---|
| Scrubs and required gear | Not deductible federally | Generally deductible on Schedule C |
| Licenses and continuing education | Not deductible federally | Generally deductible on Schedule C |
| Mileage between work sites | Not deductible federally | Deductible at 72.5 or 76 cents a mile in 2026, by trip date |
| Home office | Not available | Available if used regularly and exclusively |
| Health insurance premiums | Usually paid pre-tax through employer plan | Often deductible if no employer plan is available |
| Overtime deduction | Up to $12,500 of FLSA premium pay | Generally unavailable, since FLSA overtime covers employees |
| Tax payments | Withheld from each paycheck | Quarterly estimated payments |
Which Education Breaks Apply to Nursing Students and New Grads?
Education breaks work differently from job-expense deductions, so W-2 status does not block them. Three can apply:
- The American Opportunity Tax Credit (AOTC) is worth up to $2,500 per eligible student for the first four years of college. Up to $1,000 of it is refundable.
- The Lifetime Learning Credit is worth up to $2,000 per return. It can cover courses after a degree, such as a nurse practitioner program.
- The student loan interest deduction allows up to $2,500 of interest a year, whether or not you itemize.
Each of these breaks phases out at higher incomes. You also generally cannot claim both credits for the same student in one year. Employer tuition assistance can also be tax-free up to $5,250 a year under Section 127 of the tax code. That limit matters for nurses whose hospital pays toward an advanced degree.
How Does Georgia Treat These Breaks?
Georgia starts its income tax calculation from your federal adjusted gross income, but it does not follow every federal change. As of October 2026, three rules matter most for nurses living in the Atlanta area or elsewhere in Georgia:
- Georgia did not adopt the federal overtime deduction. Instead, House Bill 463 (HB 463) excludes up to $1,750 of qualified overtime from state tax for 2026 through 2028.
- The state standard deduction rose to $15,000 for single filers and $30,000 for joint filers in 2026.
- The flat state income tax rate dropped to 4.99% for 2026, retroactive to January 1.
The difference between the federal and state rules is large. A nurse with $6,000 of overtime premium deducts all $6,000 federally. In Georgia, the same nurse excludes only $1,750, worth about $87 at the 4.99% rate. Your employer reports the full amount, and you make the $1,750 adjustment yourself on Georgia Form 500.
Nurses in other states face their own version of this question. A state may follow the federal overtime deduction, offer a smaller break, or tax all overtime pay.
What Our CPAs Work Through With Healthcare Workers
Our CPAs at Fusion work through four questions with nurses and other healthcare professionals before a return is filed:
- Which income is W-2 and which is 1099, and if each agency classified the work correctly
- Whether the overtime on your W-2 matches the FLSA premium the deduction allows
- Which travel contracts support tax-free stipends under the tax home rules
- How much to set aside in quarterly estimates for contract income
Get Your Nursing Income Reviewed Before You File
Many nurses we work with hold a hospital job on a W-2 and pick up agency shifts on a 1099. Sorting costs and overtime by job is usually the first step. Our CPAs can go over your W-2s and 1099s with you before you file. That review confirms which of these tax breaks apply to you.
Sources and References
- IRS, “IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill” (Revenue Procedure 2025-32): https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
- IRS, “What to know about the No Tax on Overtime deduction”: https://www.irs.gov/newsroom/what-to-know-about-the-no-tax-on-overtime-deduction
- IRS, “IRS sets 2026 business standard mileage rate at 72.5 cents per mile” (IR-2025-128): https://www.irs.gov/newsroom/irs-sets-2026-business-standard-mileage-rate-at-725-cents-per-mile-up-25-cents
- IRS Announcement 2026-11, Internal Revenue Bulletin 2026-29 (midyear mileage increase): https://www.irs.gov/pub/irs-irbs/irb26-29.pdf
- IRS Publication 463, Travel, Gift, and Car Expenses: https://www.irs.gov/publications/p463
- IRS Publication 587, Business Use of Your Home: https://www.irs.gov/publications/p587
- IRS Publication 970, Tax Benefits for Education: https://www.irs.gov/publications/p970
- One Big Beautiful Bill Act, Public Law 119-21, Section 70110 (amending IRC Section 67(g))
- Georgia Department of Revenue, 2026 Employer’s Withholding Tax Guide (revised June 2026): https://dor.georgia.gov/document/document/2026-employers-tax-guide-updated-june-2026/download
- Georgia Department of Revenue, Income Tax Federal Tax Changes: https://dor.georgia.gov/taxes/tax-rules-and-policies/income-tax-federal-tax-changes
