Is Nurse Corps scholarship considered income in NJ

[farniente]

Hello,

I am writing because I have a scholarship and stipend from HRSA (a  federal program) under the Nurse Corps program. I know the stipend is considered taxable income in NJ, but my question is:  is the scholarship (all of which goes directly to pay tuition and fees at the school I am attending) considered income I need to report in NJ?  I ask because the IRS has determined that the scholarship is income for federal tax purposes (although a similar scholarship program for physicians is not federal taxable income).  Should I follow the general NJ rule that scholarships are not income?  Or should I follow the IRS ruling (that is only specific to federal income taxes)?

[Vanessa A]

Why do you say it is taxable for federal purposes? Did you get a 1098-T? Federal rules generally do not consider scholarships used for education and fees at an eligible educational institution to be taxable income.  If you use the money for room and board or anything else, then yes it would be taxable.  NJ pretty much follows the federal rules for taxation of scholarships.  If it is at an eligible educational institution and used for qualified education expenses,  it would not be considered taxable income.

Any scholarship amount above and beyond the qualified education expenses would be considered taxable income for both federal and NJ.  

However, as HalAl pointed out, this scholarship is treated differently than most scholarships.  It appears as though this type of scholarship is more of payment for services than just a scholarship as they are stating that they will issue you a W-2.  This means, that it would be treated as taxable income on your NJ return just as it would be on your federal return. 

"All the Nurse Corps Scholarship Program funds disbursed to participants, and/or to their school on their behalf, are reported to the Internal Revenue Service on a Form W-2, Wage and Tax Statement after the end of the tax year. Please note that scholarship payments may also be subject to state and local income taxes and that the Nurse Corp Scholarship Program does not withhold state and/or local taxes."  Nurse Corp Scholarship Program

(Edited 3/25/24 @ 1:21PM PST) @farniente

[Hal_Al]

@Vanessa A  I had the same reaction, but apparently it's so.

https://bhw.hrsa.gov/sites/default/files/bureau-health-workforce/funding/nursecorps-sp-guidance.pdf

"Tax Liability All components of the Nurse Corps Scholarship Program award are taxable."

"Under Section 117 of the Internal Revenue Service Code, scholarship amounts received as
payment for services required as a condition of the scholarship are taxable income." (repeated in Pub 970, although not as clearly worded)

[Hal_Al]

Q.  Is Nurse Corps scholarship considered income in NJ?

A. Yes

"Taxable Amount of Scholarships Included on Federal Return

New Jersey does tax scholarships and fellowship grants unless all three of the following apply:

• The primary purpose of the grants is to further the recipients’ education or training; and
• The grant does not represent payments for past, present, or future services nor payments for services that are subject to the direction or supervision of the grantor (e.g. a fellowship given in exchange for teaching); and
• The grant is not for the benefit of the grantor."

Reference: https://support.taxslayer.com/hc/en-us/articles/360015905651-What-type-of-income-may-need-to-be-manu...

[farniente]

Thank you all for your replies.  So if the scholarship is taxable per federal rules, is it the case that NJ follows the same logic (even if just for Nurse Corps)? Or might it be the case that the federal rule on Nurse Corps has not been adopted by NJ?

[Vanessa A]

Did you receive a W-2 for this income?  

It does appear as though NJ will be treat it as taxable income just like the IRS will be due to the fact that it does represent payment for past, present or future services. .  

Scholarships and Fellowship Grants. This type of income is taxable unless the scholarship or grant m...

1. The primary purpose of the grant is to further the recipient’s education or training; and 

2. The grant does not represent payments for past, present, or future services that are subject to the direction or supervision of the grantor (e.g., a fellowship given in exchange for teaching); and

 3. The grant is not for the benefit of the grantor.

[Hal_Al]

Q. Might it be the case that the federal rule on Nurse Corps has not been adopted by NJ?

A. Yes. But, NJ has not singled out the Nurse Corps grants.  It's just that the NJ rules apply to all grants similar to the Nurse Corps grants.