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Home > About the Programs > The LRPs and Taxes |
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INCREASED INCOME MEANS INCREASED TAXES
The loan repayments made on your behalf by NIH are considered taxable income to you by the Internal |
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Revenue Service (IRS), and will increase the federal taxes, and possibly state and local taxes, that you owe. You are always responsible for ensuring that your federal, state, local, and any other taxes are paid properly and on time, regardless of the tax-related benefits that may be provided by the NIH Loan Repayment Programs (LRPs).
LRP Tax Allowance
The LRP Tax Allowance is the sum of federal tax payments NIH makes directly to a participant’s IRS tax account within a calendar year to offset the increased federal taxes that result from LRP income. Each time NIH makes a loan repayment on behalf of LRP participants, NIH also makes a federal tax payment equal to 39 percent of the loan repayment amount (an additional tax payment at the rate of 7.5% of the loan repayment amount is made to cover social security and FICA taxes for intramural participants only). These tax payments are not tax-exempt and will be reported to the IRS along with loan payments. A 1099-G form (or a W-2 form for NIH employees) is mailed to participants no later than January 31 of the following calendar year.
Tax Reimbursements
NIH will not make state or local tax payments on behalf of LRP participants, nor will it pay any additional LRP-related federal taxes a participant may owe beyond the 39 percent tax payments described above. NIH may, however, reimburse LRP participants for the increased state/local, and/or additional federal taxes they owe as a result of their LRP income. Note that this is a reimbursement for tax payments participants have already made themselves. Tax reimbursement is discretionary, subject to the availability of funds, and is considered only for eligible participants who submit a tax reimbursement request to the NIH Division of Loan Repayment (DLR). DLR audits tax reimbursement requests for compliance and amount. If approved, the reimbursement payment is made directly to the participant.
Tax reimbursement requests must be submitted to DLR by September 30th following the tax year for which additional federal and/or increased state/local taxes were incurred as a result of reporting LRP income. The deadline will not be extended.
Additional information about tax reimbursements, including a checklist of what to submit to DLR, is included in the
Guidelines for Tax Reimbursement Requests.
Federal Tax Overpayment
In some cases, the federal tax payments made on behalf of an LRP participant for a calendar year may be greater than the increased federal taxes he/she owes for that year due
to LRP income. This results in a federal tax overpayment. To account for this, a participant’s
request for reimbursement of increased state/local taxes should be reduced by the amount of the
federal tax overpayment.
When a federal tax overpayment is identified, DLR provides the participant with two options to account for it:
- Return the overpayment to NIH by mailing a check to DLR payable to the National Institutes of Health.
- Retain and carry-forward the excess overpayment so that it may be deducted from one or more future tax reimbursement
requests, as an offset to any approved amount of reimbursement. If the participant does not submit another tax reimbursement
request, the excess federal tax overpayment need not be returned to DLR.
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