The Affordable Care Act, which was enacted in 2010, contains a tax break for health care professionals (doctors and nurses) who choose to practice in under-served areas. Prior to 2009, healthcare workers that participate in the National Health Services Corps Loan Repayment Program have been able to exclude from their taxable income the amounts of loans forgiven under the program. Several states have similar loan forgiveness programs, but in many cases the loan forgiveness was included in taxable income of the healthcare worker. Some workers receive a W-2 from their employer to report the loan forgiveness and some receive a form 1099, either way the amount of debt forgiven under many state programs was taxable income for federal income tax purposes.
Under the new law any state loan repayment or loan forgiveness program intended to increase the availability of health care services in under-served areas is now eligible for exemption from federal income tax. The law makes the exemption retroactive to the beginning of 2009.
If an eligible healthcare worker has already filed their 2009 tax return he or she can file an amended return to request a refund of the taxes paid on loan forgiveness income. Additionally if the loan repayment was reported as taxable wages on a W-2, the worker can also have their employer request a refund of the FICA taxes paid on the loan forgiveness. (both employer and employee portions of the FICA tax are refundable)
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