Current
NHSC Funding and Reauthorization
The President's FY 2009 budget proposes $121 million for the NHSC,
a $3 million (2.4 percent) decrease below FY 2008. More >>
NHSC Loan Repayment Program
The NHSC Loan Repayment program offers fully trained primary care
providers, with qualified educational loans, repayment of those
loans, if they agree to serve at an eligible site. Health care providers
who want to participate in this program must be U.S. citizens with
a valid, unrestricted State license and/or certificate to practice
in the State of the site. Participants agree to provide primary
care services in a priority HPSA for a minimum of two years. Obligations
may be extended beyond the required two years in one-year increments.
Qualified educational loans are repaid, at a maximum of $25,000
per year, in the initial two-year contract period, and $35,000 in
additional years. Although the NHSC used to provide an additional
payment of 39 percent of total loan repayment to assist with tax
liability, the "American Jobs Creation Act of 2004" (H.R. 4520,
P.L. 108-357), enacted on Oct. 22, exempts NHSC loan repayment awards
from federal income taxes.
The NHSC Loan Repayment Program is open to allopathic or osteopathic
primary care physicians with specialties in family practice, general
internal medicine, general pediatrics, general psychiatry, and obstetrics
and gynecology; dentists and dental hygienists; primary care nurse
practitioners; primary care physician assistants; certified nurse
midwives; and certain mental or behavioral health professionals.
NHSC Scholarship Program
The NHSC Scholarship Program provides full tuition and fees, twelve
monthly stipend payments, and other reasonable educational expenses.
Students who obtain these scholarships are generally encouraged
by financial aid officers to apply for these scholarships in either
their first or second year of academic training. Scholarship recipients
must provide one year of service to the NHSC for every year in the
scholarship program, with a minimum two-year commitment. To be eligible
for the NHSC Scholarship Program, students must be a US citizen
enrolled, or accepted for enrollment, in a US fully-accredited allopathic
or osteopathic medical school, family nurse practitioner program,
nurse-midwifery program, physician assistant program, or dental
school. Scholars completing medical school are expected to complete
residency programs in one of the following specialties: family medicine,
general pediatrics, general internal medicine, or obstetrics/gynecology.
After they complete their residency, scholarship recipients are
required to serve in a federally designated HPSA.
Taxation of NHSC Scholarship Awards
On August 29, 1997, the National Health Service Corps (NHSC) sent
notification to health professions schools and students of their
intention to begin withholding federal income tax on the entire
amount of scholarships awarded to NHSC scholarship recipients. As
the result of the IRS interpretation, the Department of Health and
Human Services began withholding federal income tax on the entire
amount of the NHSC scholarship package. According to the Internal
Revenue Service (IRS), taxation of the entire scholarship amount
is required to comply with a change in the tax code, specifically
a 1986 amendment to 26 USC 117(c).
Before the Tax Reform Act of 1986, NHSC scholarship recipients
were required to pay federal tax only on the stipend part of the
scholarship; the tuition and related expenses part was excluded
from gross income. In 1994, the NHSC sought clarification of the
1986 amendment to section 117 (c) from the IRS. The IRS interpretation
of section 117(c) concluded that NHSC scholarships are awarded as
payment for substantial future services and therefore are not excludable
from gross income under section 117(c). The IRS distinguishes NHSC
scholarships from other award programs administered by the Department
of Health and Human Services that "do not impose the same substantial
quid pro quo service requirements on the participants as are imposed
upon NHSC participants" and therefore are not subject to the
same federal taxation. To comply with the IRS interpretation, the
NHSC began withholding the tax obligation of the entire award from
the stipend part of the scholarship, beginning Dec. 1, 1997.
Provisions exempting National Health Service Corps scholarship
payments for tuition, fees and other education-related expenses
from taxation were signed into law as part of the Economic Growth
and Tax Relief Reconciliation Act on June 7, 2001 (P.L. 107-16).
This law is effective for payments made on or after Jan. 1, 2002.
The stipend portion of the award remains taxable.
Contacts
Matthew Shick, Senior Legislative Analyst
AAMC Government Relations
mshick@aamc.org
(202) 862-6116
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