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Taxable Loan Repayment Award?

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  • jfoxcpacfp
    replied
    Originally posted by nomindforfinance View Post
    Following - my partner also received this - his first disbursement should be coming this September-ish. It works - it makes us feel very tied to this job and location. If you have a $200,000 loan balance and get $40,000 a year tax free - that's an effective $60,000 pretax boost to your income. If it was taxable it would change the story quite a bit.
    This is a very good point, not covered in the original discussion, but something to at least consider.

    Leave a comment:


  • nomindforfinance
    replied
    Following - my partner also received this - his first disbursement should be coming this September-ish. It works - it makes us feel very tied to this job and location. If you have a $200,000 loan balance and get $40,000 a year tax free - that's an effective $60,000 pretax boost to your income. If it was taxable it would change the story quite a bit.

    Leave a comment:


  • Dragon
    replied
    Vincent2021 I was the one who posted back in December 2020. This is what I found after some more thorough online searching…


    1. IRS Publication 970 states the following regarding student loan repayment assistance programs “Student loan repayments made to you are tax free if you received them for any of the following:
    a) The National Health Service Corps Loan Repayment Program.
    b) A state education loan repayment program eligible for funds under the Public Health Service
    Act.
    c) Any other state loan repayment or loan forgiveness program that is intended to provide for
    the increased availability of health services in underserved or health professional shortage
    areas (as determined by such state).
    d) You cannot deduct the interest you paid on a student loan to the extent payments were made
    through your participation in the above programs.”

    2. Payments under certain state loan repayment programs.
    a) In the case of an individual, gross income shall not include any amount received under section 338B(g) of the Public Health Service Act, under a State program described in section 338I of such Act, or under any other State loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas (as determined by such State).
    b) Under 26 U.S.C. § 3401(a) (19), state loan repayment program payments are also not considered to be “wages” and are therefore exempt from Federal employment tax (FICA).


    Based on what 1c, 2a, and 2b is saying, it seems like the CalHealthCares program would fall under a state loan repayment program that increases availability of health care services in underserved or HPSAs.

    Of course, this is if the information I found is actually accurate. 🤷‍♂️
    Hope it helps others who have been lost like me, but of course, take everything with a grain of salt as I am no tax expert.

    Leave a comment:


  • Vincent2021
    replied
    Were you all able to get any updates about this question of nontaxable vs taxable when you did your tax returns this year with your CPA? I'm was also lucky to be in the 1st cohort but still awaiting payment for first disbursement due to some delays. Thanks in advance! If it worked well (i.e. nontaxable) may I also ask who you used as your CPA?

    Leave a comment:


  • jfoxcpacfp
    replied
    We have a SL advisor on our Wealth Mgmt team but that wb overkill instead of underkill. Ck with a couple of the student loan advisors on the blog. I’m sitting in my car with only an iPhone, so no linking at the moment.

    Leave a comment:


  • Dragon
    replied
    Originally posted by jfoxcpacfp View Post
    I’ll be honest: this is not the type of question that I or anyone on our team w/b able to answer w/o some digging and serious research (which I don’t have the capacity for currently, I apologize.) To get a definitive answer backed up by authority, you are going to have to pay a professional, preferably one with SL experience, who can cite you the reasoning for tax treatment and document in work papers. This is too much $$ to base your decision on what ppl on a free online forum have to say.
    jfoxcpacfp Appreciate your response. I don’t have a problem paying a professional to help me figure this out, but I guess my issue is I’m not sure who I can ask (locally or otherwise). Should I be looking into a CPA? Tax Accountant? Then it’s also a matter of tracking one down that has a good amount of student loan experience.

    Just feel like I’ll be scratching my head at this one for awhile, but I’m definitely grateful I got it and it is a good problem to have.

    Thanks for your reply!

    Leave a comment:


  • jfoxcpacfp
    replied
    I’ll be honest: this is not the type of question that I or anyone on our team w/b able to answer w/o some digging and serious research (which I don’t have the capacity for currently, I apologize.) To get a definitive answer backed up by authority, you are going to have to pay a professional, preferably one with SL experience, who can cite you the reasoning for tax treatment and document in work papers. This is too much $$ to base your decision on what ppl on a free online forum have to say.

    Leave a comment:


  • Dragon
    replied
    remapthesoul, did you ever figure out whether it will be taxable or not? I was also very fortunate and got accepted for the 2nd cycle and have been wondering this same question with no available answer anywhere. Trying to budget how much interest I should be paying on a monthly basis +/- saving up some of the award for tax if needed.

    Leave a comment:


  • remapthesoul
    replied
    Originally posted by East coast View Post
    My actionable advice would be to either ask over on the Reddit student loan boards (users there are much more in tune with this type of info) or reach out directly to The Institute of Student Loan Advisors - https://freestudentloanadvice.org/. They are a non-profit advocacy/lobbyist/advice giver etc. group. That's what I'd do in your shoes. Good Luck and let us know how it turns out if not answered directly here by someone else.
    I contacted the Institute of Student Loan Advisors, who responded saying that this is really more a tax question than a loan question, so they deferred to a tax expert.

    Leave a comment:


  • remapthesoul
    replied
    Thank you for your responses and advice! I'll be contacting Institute of Student Loan Advisors right away and will report back any response I receive.

    Leave a comment:


  • jhwkr542
    replied
    It certainly sounds non taxable to me

    Leave a comment:


  • Tim
    replied
    https://taxmap.irs.gov/taxmap2016/pubs/p970-020.htm
    Payments directly to you would not be the issue. The state has defined “underserved or healthcare shortage area”. It looks to me like the IRS has deferred to the states and the state has exercised this authority. No way would I pay taxes without a fight. Publication 970 is the document I would send to your CPA. It appears to provide guidance as nontaxable.

    Leave a comment:


  • East coast
    replied
    Originally posted by remapthesoul View Post
    Hi WCI friends,

    I was very fortunate to be accepted as an awardee for the CalHealthCares loan repayment plan last year here in California. For those not familiar, the program is a 5 year commitment to see at least 30% Medi-Cal (aka Medicaid) patients and receive up to $300,000 for loan repayment in annual installments. I am expecting my first award this fall, but am curious if I will be taxed on the award money. The program states in its FAQ that they don't expect the award to be taxable:
    "If funds are paid to me directly, will I be liable for taxes?
    Payments made under the National Health Service Corps or any state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas are excluded from gross income, effective for amounts received by an individual in tax years beginning after December 31, 2008. This response is not intended to provide tax or legal advice! Applicants with questions regarding the taxable and/or reportable nature of this loan repayment should consult a tax advisor."

    And they link to IRS Topic No. 431, with the relevant quote being, "Certain other education loan repayment or loan forgiveness programs to help provide health services in certain areas" are exceptions to cancellation of debt income.

    I spoke to a CPA today and he was convinced that the award would be taxable because it is not paid directly to the loan servicer, but rather to me. Would appreciate any thoughts or insight on this. Thank you!
    Unfortunately, I do not know the actual answer to your question, but if I've learned one thing through the loan process, it's that a run of the mill CPA is in way over their head when it comes to the unique incentives and regulations when it comes to different student loan issues - not a criticism, but a recognition that you are the first and likely only person to ever ask that question to them. Unless that CPA is specifically a specialist in the program you are a part of (much less a specialist in student loans), I would kindly put that advice way at the back of the mind and seek out 'actual' advice (which you clearly are doing).

    My actionable advice would be to either ask over on the Reddit student loan boards (users there are much more in tune with this type of info) or reach out directly to The Institute of Student Loan Advisors - https://freestudentloanadvice.org/. They are a non-profit advocacy/lobbyist/advice giver etc. group. That's what I'd do in your shoes. Good Luck and let us know how it turns out if not answered directly here by someone else.

    Leave a comment:


  • remapthesoul
    started a topic Taxable Loan Repayment Award?

    Taxable Loan Repayment Award?

    Hi WCI friends,

    I was very fortunate to be accepted as an awardee for the CalHealthCares loan repayment plan last year here in California. For those not familiar, the program is a 5 year commitment to see at least 30% Medi-Cal (aka Medicaid) patients and receive up to $300,000 for loan repayment in annual installments. I am expecting my first award this fall, but am curious if I will be taxed on the award money. The program states in its FAQ that they don't expect the award to be taxable:
    "If funds are paid to me directly, will I be liable for taxes?
    Payments made under the National Health Service Corps or any state loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas are excluded from gross income, effective for amounts received by an individual in tax years beginning after December 31, 2008. This response is not intended to provide tax or legal advice! Applicants with questions regarding the taxable and/or reportable nature of this loan repayment should consult a tax advisor."


    And they link to IRS Topic No. 431, with the relevant quote being, "Certain other education loan repayment or loan forgiveness programs to help provide health services in certain areas" are exceptions to cancellation of debt income.

    I spoke to a CPA today and he was convinced that the award would be taxable because it is not paid directly to the loan servicer, but rather to me. Would appreciate any thoughts or insight on this. Thank you!
    Last edited by remapthesoul; 08-21-2020, 10:28 AM.
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