Al Bundy wrote:
- quote -

The following reply was sent on 2/19 and appears to have
disappeared.

The National Health Service Corps is under the US Dept of
Health & Human Services. One of the missions is to find
clinicians to serve in geographic areas that are under
staffed. One of the programs designed to provide an
incentive to individuals (nurses qualify) to serve, is the
LRP. Who qualifies and what the commitment represents is at:
http://nhsc.bhpr.hrsa.gov/join_us/lrp.cfm

This type of program is similar to a variety of other
programs such as Americorps. The IRS position is that the
payment is taxable because the person is performing services
in order to obtain the grant. NHSC recognizing this,
decided to enhance the offering by providing an additional
payment to help offset the taxability.

The net of all this is that the amount received is taxable
ordinary income subject to self-employment tax.

The following was added to assist Cindy:

I don't know how the NHSC provides the tax assistance.
However, if they used a method that sent tax withholding to
the IRS it would be reflected on the 1099. It is possible
that their method is nothing more than just increasing the
grant amount. And yes, any tax assistance is also subject to
tax.

--
Alan
http://taxtopics.net

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"A.G. Kalman" <glendale202-mtm[at]yahoo.com> wrote:
- quote -

The tax assistance payment is to be paid to the IRS
directly? How do I know how much was paid on behalf of the
participant if she doesn't receive any statement or
information pertaining to this? I saw the 1099 from 2002
and it didn't show any withholding on it. Do I just take
the award times the 39% and show as withholding? Thanks
again for any further insights. Is there a website that
would have more information about this program?

Thanks.
Cathy Herber

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"A.G. Kalman" <glendale202-mtm[at]yahoo.com> wrote in
- quote -

Please help out an interested amateur and translate what
this nets out to. Thanks.

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Cathy wrote:

- quote -

This appears to be part of a NHSC LRP contract. (National
Health Service Corps Loan Repayment program) or some type of
equivalent. Here is an excerpt from the NHSC LRP FAQ:

Q: What is the amount of loan repayment clinicians are
eligible to receive in FY 2004?

A: For the first 2 years of service, the NHSC LRP will pay
up to $25,000 for each year of service, based on the
participant's outstanding balance of qualifying educational
loans. If the total amount of the participant's qualifying
educational loans is less than $50,000, the NHSC LRP will
pay one-half of the total qualifying educational loans
annually. All loan repayments paid to the participant must
be used by the participant to repay the approved qualifying
educational loans. In addition to the loan repayments,
participants are entitled to tax assistance payments equal
to 39 percent of the total amount of loan repayments
received during a tax year. The loan repayments and the tax
assistance payments are taxable income and will be reported
to the Internal Revenue Service (IRS). The IRS has
determined that employment tax also applies to NHSC LRP
awards. The tax assistance payment will be paid to the IRS
directly on the participant's behalf.

--
Alan
http://taxtopics.net

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I have a client who received a "scholarship". She is an RN
and has been out of college for several years. She was
awarded this "scholarship" to help pay off her student loans
from her schooling, provided she was employed by a rural
hospital during the time these payments are being made to
her (over a 2 year period).

The U.S. Department of Health and Human Services has issued
her a 1099-MISC for this in 2002 and 2003.. For 2003, this
"scholarship" is around $15,000. It is in box 7 -
Nonemployee compensation.

Last year's return (prepared by H&R) showed the $1,500 or so
she received on a Schedule C and thus she was subjected to
SE tax.

Since I'm sure the IRS will be looking for this income on
Schedule C, do I just need to "back it out" of Schedule C as
some other expense (what I don't know!) and then report on
line 21 of the 1040? I can't see where she has performed
any services for this income and thus don't understand why
it should be SE income! (Much like the discussion about the
teacher grant a few days ago.)

Anyone have any insights to this? I don't see that it's
worth going back and amending the 2002 return, but heck, the
2003 return is going to cause around $3,000 of SE tax.

The client doesn't have a problem paying income taxes on it,
but I think the SE tax on this is ridiculous.

Thanks for any input!
Cathy H.

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