NHSC Scholarship is no longer tax free (exp. Dec 2012)

[agentghost]

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

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

---

Members don't see this ad.

 

[MikeDiggity]

http://www.journalofaccountancy.com/News/20137097.htm

The article talks about the NHSC and HPSP exemption for income tax being extended, but I did not actually see it in the tax bill itself, so I'm not sure either way yet.

 

[Atticus]

Great find, I've been searching for this info for a while now!

 

[MikeDiggity]

Here are some more details related to what I posted above.

"After doing a lot of digging around, I've found a few sources that appear to confirm a continued exemption from income tax liability for HPSP and NHSC tuition costs (however, the living stipends are still considered taxable income).

Here is an article written by a tax lawyer that describes which provisions are extended in connection with the House and Senate bill passed a few days ago.

http://www.journalofaccountancy.com/News/20137097.htm

Here is the section that matters to those of us concerned with the scholarships

"Permanent extensions

Various temporary tax provisions enacted as part of EGTRRA were made permanent. These include:

Marriage penalty relief (i.e., the increased size of the 15% rate bracket (Sec. 1(f)(8)) and increased standard deduction for married taxpayers filing jointly (Sec. 63(c)(2));
The liberalized child and dependent care credit rules (allowing the credit to be calculated based on up to $3,000 of expenses for one dependent or up to $6,000 for more than one) (Sec. 21);
Expanded adoption credit (Sec. 23) and adoption-assistance program (Sec. 137) amounts;
The exclusion for National Health Service Corps and Armed Forces Health Professions scholarships (Sec. 117(c)(2));
The exclusion for employer-provided educational assistance (Sec. 127);
The enhanced rules for student loan deductions introduced by EGTRRA (Sec. 221);
The higher contribution amount and other EGTRRA changes to Coverdell education savings accounts (Sec. 530);
The employer-provided child care credit (Sec. 45F);
Special treatment of tax-exempt bonds for education facilities (Sec 142(a)(13));
Repeal of the collapsible corporation rules (Sec. 341);
Special rates for accumulated earnings tax and personal holding company tax (Secs. 531 and 541); and
Modified tax treatment for electing Alaska Native Settlement Trusts (Sec. 646)."

I got in touch with the author of the article about where to find verification for this claim, asking him this, "I came across the article (http://www.journalofaccountancy.com/News/20137097.htm) you published yesterday on the Journal of Accountancy website and I had a question about the source for the permanent tax extensions. I browsed through the copy of the bill passed by the House and Senate two days ago and didn't see any mention of Section 117 (c)(2) which relates to the income tax exemption for the scholarship. I would appreciate any input you might be able to share on this issue."

This was the author's reply, "Thanks for your question. The Sec. 117(c)(2) exclusions are not specifically mentioned in the act (as you note), but they are made permanent because they were enacted as part of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the changes in the 2001 act were made permanent by section 101 of the fiscal cliff bill."

Another source that also makes the same claim can be found here http://tax.cchgroup.com/downloads/fi...ation/ATPR.pdf on the 8th page of the document."

If anyone else has any additional information, please share. I don't want to count chickens before they hatch but I feel like things are looking good.