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Tax refunds owed to some physicians in underserved areas
■ Medical student loans repaid by certain state programs are no longer considered taxable income.
By Victoria Stagg Elliott — Posted July 14, 2010
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Physicians whose student loans were modified or paid off by state-level arrangements that encourage practicing in underserved areas may be owed refunds from the Internal Revenue Service.
As part of the Patient Protection and Affordable Care Act, signed March 23 into law by President Obama, money provided through state-run student loan forgiveness programs as an incentive to work in underserved rural or urban areas no longer will be considered taxable income. The change is retroactive to Jan. 1, 2009.
"By expanding the tax exclusion for student loan forgiveness, the Affordable Care Act provides an even greater incentive to practice medicine in areas that need it most," IRS Commissioner Doug Shulman said in a statement issued June 16.
The IRS is advising physicians and others who think their incentives may qualify first to confirm with state authorities. The next step, if the 2009 return already has been filed, is to send the IRS a completed 1040X form (link).
The phrase "excluded student loan amount under 2010 Health Care Act" should be written in the "explanation of changes" box.
An amended W-2 also may be requested from an employer, but it is not required to get a tax refund.
Those who have had student loan forgiveness included in their gross income also may ask their employers to apply for a refund of FICA payments, because this money was included in the gross income.
Loan forgiveness has long been a part of projects designed to address health care work force shortages, but, if handled by the state, this money became taxable federal income.
Many medical societies, including the American Medical Association, have long supported various programs that encourage physicians to work in underserved areas.
