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Regular Loan Payments
Recipients are responsible for making any required loan payments prior to receiving an LRP award. For example, if you are awarded an LRP contract in April but
you do not begin work until August, you must continue to make your regular loan payments until August. While receiving LRP payments, recipients must provide
payment records as verification that their approved loan debt is being repaid with LRP funds.
Tax Liability
Loan Repayment Program payments are taxable income and will be reported to the Internal Revenue Service (IRS). Recipients are responsible for paying the
balance of their federal tax liability (the LRP pays 20 percent) as well as any applicable state and local taxes. The LRP makes no provision for the payment of
state or local taxes, so LRP recipients are advised to consult with their local or state tax office regarding the increased liability. The IHS withholds your
portion of the Federal Insurance Contributions Act (FICA) contribution on your LRP payments, as required by law. Recipients must use the full award amount
(including the FICA contributions withheld) to pay the loan debt. IHS will send you a Form W-2 Wage and Tax Statement each year reflecting the total amount of
loan repayment funds you received and the amount of federal income and FICA tax withheld by the LRP.
Delinquency on the Payment of any Federal Debt
Applicants delinquent on any federal debt must prove, through lender documentation, that they have negotiated a repayment schedule or that the debt has been
paid in full. Federal debt includes delinquent federal income taxes, audit allowances, federally guaranteed (or insured) loans, federal-direct loans and other
miscellaneous federal administrative debts.
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