More and more hospitals are giving sign-on bonuses and even stipends during training as forgivable loans.  It’s important to understand the distinction between a forgivable loan and traditional bonus or stipend as the tax consequences are different.

Ordinarily, when you receive a bonus or stipend, it’s considered income in the year received.  So, if you signed on with a hospital and received a signing bonus of $50,000 in 2019 then your W2 would show $50,000 of income. 

With a forgivable loan, it’s all about the period over which the loan is forgiven.

Let’s look at an example.
Using the same terms as above, let’s assume you received a $50,000 forgivable loan in 2019 and it’s forgiven over 5 years, starting in August 2019 (let’s assume this is when you started at the hospital.)

In 2019, your W2 income would only be $4,166.67 not $50,000. Why?  Unlike a traditional bonus, the loan is forgiven over the period worked and you only worked 5 months in 2019.  The math is $50,000 x 5 months/60 months.  In 2020, you will have $10,000 forgiven which will be added to your W2 income. 

Why does this matter?  Not all hospitals withhold federal or state income taxes for you.  If this is the case, you might get stuck with a large tax bill come the following spring when you file your tax return.  Be sure to ask your organization if federal and state (where applicable) income taxes will be withheld on your regular paycheck.  If not, consider putting a few dollars away in preparation for the tax bill.

WM

Weston is a Certified Public Accountant, Certified Financial Planner^TM, and holds the Chartered Financial Analyst designation. Weston earned his master’s degree in accountancy from the University of Missouri – Columbia. Weston is active in the St. Louis community and board member of the Anti-Defamation League.

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