I’m a Canadian RN on a TN visa working in Washington. I maintain a tax home in Canada and receive tax-free travel stipends. I moved here in September 2025 and my contract ends in August 2026. If I accept an extension that pushes me beyond one year in the same metropolitan area, how does the IRS one-year rule apply? Do only future stipends become taxable, or is there a risk the IRS could challenge the tax-free stipends I already received? Does it matter when it became expected that I’d stay longer than one year?
If you accept a contract extension that pushes your stay beyond one year, your assignment becomes indefinite on the date your expectation changes. The travel expenses you incur before that date remain deductible, but the expenses you incur after that date become nondeductible.
You keep the tax-free status of the stipends you received during the months you realistically expected to leave within a year.
The IRS one-year rule looks at your realistic expectation of how long your work will last. If you expect your employment in a single location to last for one year or less, the IRS treats it as temporary. During a temporary assignment, your travel expenses are deductible.
Because you asked if it matters when your expectation changes: yes, it is the deciding factor. If you initially expect to stay for one year or less, but later realize you will stay longer, your employment is treated as temporary only until the date your realistic expectation changes.
This means your past stipends and future stipends are treated differently. The travel expenses you pay or incur during the initial months, before your expectation changed, are deductible. However, any travel expenses you incur after the date your expectation changes are nondeductible.
