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.
“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?”
Summary
You keep the tax-free status of the stipends you received during the months you realistically expected to leave within a year.
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How the IRS one-year rule applies to your extension
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.
Next steps
Here is how the IRS applies the one-year rule to your contract extension:
Qualify under the initial one-year expectation
Because you initially expected your contract to last less than a year, your assignment is treated as temporary. Your travel expenses during this time are deductible.
Identify the date your expectation changes
If you accept an extension that pushes your total stay beyond one year, your assignment becomes indefinite. This change takes effect on the exact date you realistically expect the work to exceed one year.
Transition to taxable stipends
The travel expenses you incur before the date your expectation changes remain deductible. Any expenses you incur after that date are nondeductible.
Legal sources
The rules for temporary and indefinite work assignments are established in IRS Revenue Rulings.
Rev. Rul. 93-86
If an assignment initially expected to last one year or less is extended beyond a year, it is treated as temporary until the date the expectation changes.
If employment away from home in a single location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to exceed 1 year, that employment will be treated as temporary (in the absence of facts and circumstances indicating otherwise) until the date that the taxpayer's realistic expectation changes.
Rev. Rul. 93-86
Travel expenses incurred before the expectation changes are deductible, but expenses incurred after that date are not.
Thus, C's travel expenses paid or incurred in Cl-2 during the first 8 months are deductible, but C's travel expenses paid or incurred thereafter are nondeductible.
SettleKit is not a law firm and this is general information. Confirm your specific situation with a licensed immigration or tax attorney.
SettleKit is not a law firm and this is general information.
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