Hi all, I signed a contract on Oct 2011. The payment won't be deposited until Feb 2012. Would the payment be taxed for the year 2011 or 2012? Can I choose which year it would be taxed in? Thanks.
In general, the amount eliminated under loan repayment or forgiveness programs is considered taxable income in the year received. In your case the payment will be taxed in 2012, the year the funds will be deposited to your account. However, a special income exclusion applies to the discharge of all or part of a student loan if, pursuant to the loan agreement, the discharge is made because the individual works for a specified period of time in certain professions for any of abroad class of employers (e.g. as a doctor or nurse in a rural area) Code Sec. 108(f). For instance, loan repayments made under the National Health Services Corps (NHSC) Repayment Program or any state program eligible for funds from the Public Health Services Act are considered tax-free. Whereas, the loan repayments made on your behalf by National Institutes of Health (NIH)are considered taxable income to you by the Internal Revenue Service (IRS) and will increase the federal taxes, and possibly state and local taxes, that you owe.
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