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FAQ: Scholarship Program Tax Updates

We updated tax information for the Nurse Corps Scholarship Program (Nurse Corps SP) and the Native Hawaiian Health Scholarship Program (NHHSP).

Questions

What's changed?

Through 2017, we withheld federal income tax on Nurse Corps SP and NHHSP participants' monthly stipend and annual payment for Other Reasonable Costs (ORC).

On January 1, 2018, we withheld federal income tax owed on the other components of the award (i.e., payment for tuition and fees). We also withhold the "employee" share of the Federal Insurance Contributions Act (FICA) tax.

We'll report all funds given to you, or to your health professions school on your behalf, to the Internal Revenue Service (IRS) on Form W-2.

Is this a new policy?

No. We're carrying out guidance from the IRS.

As per Section 117(c)(1) of the Internal Revenue Code, the entire Nurse Corps SP and NHHSP award is taxable because it represents payment for services by the student required as a condition for receiving the qualified scholarship.

What part of my scholarship award is taxable?

All components of the Nurse Corps SP and NHHSP awards are taxable. This includes tuition, fees, ORC annual payment, and monthly stipend payments.

Withholding income and employee FICA tax from award payments means that portions of your award may be reduced, including the tuition paid to your school.

If the amount withheld doesn't cover your tax obligations, you're responsible for paying the remainder to the IRS.

What is FICA?

Federal Insurance Contributions Act (FICA) tax is composed of Social Security and Medicare taxes paid by individuals and employers.

Why does the IRS take it out of my award?

While receipt of a Nurse Corps SP or NHHSP award does not make you a HRSA employee, the IRS considers such scholarship funds to be "wages" and HRSA to be the "employer" because HRSA controls the payment of the funds.

Employment tax (FICA) applies to the entire award – tuition, fees, stipend and ORC.

The agency must pay the employer share of FICA tax (7.65%) and withhold the employee share of FICA (7.65%) from your award.

Do I have to file a tax return with the IRS?

To determine whether you need to file a tax return, you should either

  • Speak with a professional tax advisor;
  • Visit the IRS online; or
  • Contact the IRS Tax Help Line at (800) 829-1040

You're not excused from having to file a tax return with the IRS because HRSA has reported your Nurse Corps SP or NHHSP income to the IRS.

Can I calculate my projected award amount after taxes?

The Nurse Corps SP and NHHSP after-tax calculation is an individual assessment. It includes many factors that are specific to you.

For example, the amount of your award, your marital status, and the number of allowances you claim on your W-4, Employee's Withholding Allowance Certificate, will affect the amount of federal income tax withheld.

We're unable to project the amount of federal income tax each Nurse Corps scholar or NHHSP participant will owe.

However, each scholar's FICA tax withholding is the same: the "employee" share equals 7.65% of the total Nurse Corps SP or NHHSP award (6.2% for Social Security and 1.45% for Medicare).

We recommend that you get professional tax advice to help you consider your individual tax situation and the net effect that the withholding and reporting changes may have on your award benefits and tax liability.

If my tuition payment is reduced, can I take out a loan to pay the difference?

We suggest you speak with the financial aid advisor at your health professions school for the financial options that may assist you with paying for your education expenses.

Can I apply for another government program for additional funds?

As explained in the applicable APG, you may seek other sources of funding as long as you do not incur another service obligation.

Do you provide tax advice or assistance?

HRSA doesn't provide tax advice.

Can I decline the award or return the money and get out of your contract now that you have a better understanding about the impact of withholding taxes on your scholarship?

You can decline the scholarship at any time before the agency countersigns your contract. Once you sign the contract and HRSA has countersigned it, the contract is in effect.

We can terminate the contract on or before June 1 of the school year to which the contract pertains, only if you:

  • Submit a written request to terminate your contract for that academic year; and
  • Repay all amounts that were paid to you, or on your behalf, for that school year (tuition, fees, stipend, and ORC).

If you meet these requirements and we terminate your contract, you no longer have a service obligation for that school year.

However, if you received Nurse Corps SP or NHHSP support for one or more prior school years, you will still owe service in return for those prior years of support.

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