Effective for amounts received after 1/1/09, IRC Sec. 108(f)(4) authorizes an income exclusion for amounts received under a state loan repayment program or loan forgiveness program that is intended to increase the availability of health care services in areas that a state determines are underserved or have a shortage of health professionals. In this legal memo, the IRS determined that loan repayments received by participants in a state program designed to encourage healthcare professionals to perform services in underserved areas are excludable from income under this provision. The repayments are not wages, are not subject to income tax withholding or employment taxes, and are not subject to Form W-2 or Form 1099.
