Military Scholarship is no longer tax free?

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agentghost

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Hey guys,
NHSC Scholarship (and military scholarship) are no longer tax free. :mad:

Just a notification I got from the NHSC

The NHSC wants to make you aware of potential changes to the Internal Revenue Code (IRC) that could affect you if you receive an NHSC scholarship. Currently, the tuition, fees, and other reasonable cost components of the NHSC scholarship award are exempt from Federal income tax (Section 117(c)(2) of the IRC). However, that tax exemption will expire on December 31, 2012 if an extension is not signed into law. If Section 117(c)(2) expires, NHSC scholarship program participants will be responsible for paying the income tax on all portions of the scholarship award received on or after January 1, 2013.


Here is what section 117(c)(2) is all about

117(c)(2)
Expire: 12/31/2012

Description of Provision:
Elimination of tax on awards under the National Health Service Corps Scholarship Program and the F. Edward Hébert Armed Forces Health Professions Scholarship and Financial Assistance Program (Code Sec. 117(c)(2) and §901 of P.L. 107-16)

Termination Term
A termination rule applies to all provisions (not otherwise extended or made permanent) that were enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) (P.L. 107-16). (this was signed by George W. Bush in 2001)

These provisions terminate December 31, 2012, under EGTRRA section 901, as modified by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA) (P.L. 111-312).

Source: http://www.mlbinc.com/news110.htm

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So if I'm reading this correctly, does that mean that someone that hypothetically receives NHSC (or hpsp) scholarship money of $100K would be taxed as if they earned $100K that year? Thus landing them near the 30% tax bracket and having to pay $30K in taxes? (when in reality you never "earned" any of the money)
 
So if I'm reading this correctly, does that mean that someone that hypothetically receives NHSC (or hpsp) scholarship money of $100K would be taxed as if they earned $100K that year? Thus landing them near the 30% tax bracket and having to pay $30K in taxes? (when in reality you never "earned" any of the money)

yes, that is correct. That 100k scholarship will be counted as taxable income since the 2001 tax-break law will be expired by the end of this year.
 
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I think you must be reading into this wrong. From what I understand, your tuition is paid directly to the school, so never even passes through your hands...how could that be considered a part of your annual income? The only part that is taxable is the monthly stipend or any money paid directly to the student for things like room and board. I'm no tax expert, but I'm pretty sure that's how it works for every educational scholarship out there...
 
I think you must be reading into this wrong. From what I understand, your tuition is paid directly to the school, so never even passes through your hands...how could that be considered a part of your annual income? The only part that is taxable is the monthly stipend or any money paid directly to the student for things like room and board. I'm no tax expert, but I'm pretty sure that's how it works for every educational scholarship out there...

I am not sure which part of it is wrong?!?!?? basically we got a provision that stated "all military scholarship and NHSC scholarship are exempted from tax". Sadly, by the end of 2012, that provision will expire --> from 2013 onward, we will get taxed. How did you interpret it? :confused:

Like you, I don't want to pay tax on that colossal loan. We are crushed under heavy educational debt as it is.
 
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The scholarship goes straight from the military to the school - it will not be taxed.

under this theory, then loan repayment should be tax free too, but it isn't. hplrp program monies goes from govt directly to loan company, but taxes are owed.

anyways, the website says that most provisions are renewed.

good luck!
 
What a royal screwing. You either take out the loans and go deep in debt. Or you get a scholarship then must pay ~30k per year (120k total) after your education? That doesn't seem right.
 
under this theory, then loan repayment should be tax free too, but it isn't. hplrp program monies goes from govt directly to loan company, but taxes are owed.

anyways, the website says that most provisions are renewed.

good luck!

Taxes aren't "owed"....they are deducted prior to lender repayment. So if you get $40K in loan repayment, ~$30K goes to the lending institution. They don't give the lender $40K and then tell you to give them $10K out of your own pocket. It's actually a pretty big difference.
 
Taxes aren't "owed"....they are deducted prior to lender repayment. So if you get $40K in loan repayment, ~$30K goes to the lending institution. They don't give the lender $40K and then tell you to give them $10K out of your own pocket. It's actually a pretty big difference.

just until this year, army hplrp applied 40K to your loan and you received a 1099-misc at the end of the year where you had to pay taxes on this.

starting this fiscal year, they are taking out 25% before paying your loan. thus only 30K is applied to your loan.
 
This being an election year, I don't think anyone has anything to worry about with the tax exemption expiring. I'm 110% sure it will be extended.
 
anyone have any updates? should we be doing anything such as writing our congressmen?
 
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