NURSE Corps Scholarship and Native Hawaiian Scholarship Program Tax Updates – Frequently Asked Questions

Information given in the following FAQs overrides the tax information contained in the NURSE Corps Scholarship Program 2017-2018 Application and Program Guidance and the Native Hawaiian Health Scholarship Program 2018-2019 Application & Program Guidance.

What is changing?

Up through 2017, we withheld federal income tax on NURSE Corps Scholarship Program (SP) and Native Hawaiian Health Scholarship Program (NHHSP) participants’ monthly stipend and annual payment for Other Reasonable Costs (ORC).

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

Additionally, all funds disbursed to you, or to your health professions school on your behalf, will be reported to the Internal Revenue Service (IRS) on Form W-2.

Is this a new HRSA policy?

No. HRSA is implementing guidance from the IRS. As per Section 117(c)(1) of the Internal Revenue Code, the entire NURSE Corps SP and Native Hawaiian Health Scholarship Program (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 your NURSE Corps and Native Hawaiian Health scholarship award is taxable?

All components of the NURSE Corps SP and NHHSP award are taxable, including 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 does not cover your tax obligations, you are responsible for paying the remainder to the IRS.

What is FICA and why is it being taken out of your award?

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

While receipt of a NURSE Corps SP or NHHSP award does not make the recipient 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 (currently 7.65%) and withhold the employee share of FICA (currently 7.65%) from your award.

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

We suggest that you speak with a professional tax advisor, visit the IRS online, or contact the IRS Tax Help Line at (800) 829-1040 to determine whether you need to file a tax return.

You are 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.

Is there any way to calculate your projected award amount after taxes?

The NURSE Corps SP and NHHSP after-tax calculation is an individual assessment, which includes many factors that are specific to the individual taxpayer.

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.

HRSA is not able 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 your tuition payment is reduced, will you be able to 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 you 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.

Does HRSA provide tax advice or assistance?

HRSA does not provide tax advice. We suggest you speak with a tax professional, visit the IRS online, or contact the IRS through their TAX HELP LINE at (800) 829-1040.

Can you 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 have signed the contract and HRSA has countersigned it, the contract is in effect.

HRSA can terminate the contract only if, on or before June 1 of the school year to which the contract pertains, 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 the contract is successfully terminated, 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.

Will the changes in reporting and withholding affect your 2017 taxes?

No. This change in reporting and withholding went into effect in 2018.

If a 2017 school invoice is paid in 2018, it will be included in HRSA's reporting of your 2018 NURSE Corps SP or NHHSP "income." HRSA will withhold federal income and FICA taxes on your NURSE Corps SP or NHHSP award payments, including those for tuition.
 

Date Last Reviewed:  May 2018


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