Work Off the Beaten Path? Don’t Miss Out on These 7 State Rural Practice Credits

Be sure to read until the end for a special trivia question!

“Rush hour” is much easier to bear if you’re also getting a $5,000 credit

Now that it’s tax filing season, many taxpayers (especially self-employed ones) are looking at their draft 1040’s and feeling sticker shock.  Unfortunately, your options for reducing your tax bill at this stage of the game are pretty limited, but it’s worth looking into whether you qualify for any unexpected tax credits at the federal, and especially the state level. 

The IRS doesn’t carve out very many tax breaks that are occupation-specific (the educator expense deduction is one exception).  However, because some states are experiencing acute physician shortages, especially in rural areas, some states are giving generous tax credits as a carrot for doctors to work in underserved areas.

This post is an overview of some of the state credits that are available.  While they likely represent a small fraction of your income, if you are inclined to work in an underserved community, you might as well take advantage of them.  And if you have already been working in a location where such a credit is available, it’s critical to understand the process for claiming the credit.

ALABAMA

Rural Physician Credit

Potential Amount:  $5,000 per year ($10,000 if both spouses qualify), for up to five consecutive years.  Nonrefundable.

Terms:  You must practice and reside in a small or rural Alabama community of fewer than 25,000 residents with admission privileges to a small or rural hospital with an emergency room.  The acute care hospital either must have fewer than 105 beds, be located more than 20 miles from another acute care facility, or it must receive Medicare rural reimbursement from the federal government.  Document on AL Form OC in your tax return.

COLORADO

Rural and Frontier Health Care Preceptor Credit

Potential Amount:  $2,000 for each qualifying preceptorship, up to three preceptorships ($6,000).  Nonrefundable.

Terms:  It’s actually a pretty restrictive credit, and appears to only cover uncompensated mentorship in a primary care field.  Preceptorship also needs to be at least four weeks, or 20 days long.

Definitions of “rural” and “frontier” areas are described in CO Tax code

You need to email a completed form, signed by a representative of the teaching institution or AHEC office to the Department of Revenue.  They will then inform you once the credit is approved, after which you claim the credit on your tax return.

A maximum of 300 individuals receive the credit each year (the DOR goes by chronological order of submitted forms).

GEORGIA

Rural Physicians Credit

Potential Amount:  Up to $5,000 per year for five years.  Nonrefundable.

Terms:  Must practice in a county and live in a rural county, or contiguous to one (looks like Atlanta is out).  List of counties is here.  Also, you must practice in family medicine, internal medicine, pediatrics, OB/GYN, or general surgery and admit to a hospital in a rural county with 100 or fewer beds.

MARYLAND

Physician Preceptorship Tax Credit

Potential Amount:  $1,000 for each student rotation (maximum $10,000).  Nonrefundable.

Terms:  Must be uncompensated mentorship.  Must complete a minimum of three rotations of at least 100 hours of community-based training (which makes the minimum credit $3,000).  The site also needs to be designated a workforce shortage area using one of five different metrics.  More info here.

NEW MEXICO

Rural Health Care Practitioner Tax Credit

Potential Amount:  $5,000 ($2,500 if part-time).  Nonrefundable.

Terms:  You need to apply for a Certificate of Eligibility.  You must practice in a rural underserved area, as defined by the federal government.  The program overview explains how to verify that a site qualifies as well as definitions of full- and part-time (remote work doesn’t qualify).  Once the Certificate of Eligibility is granted, you need to fill out the credit claim form and submit it with your tax return. 

OREGON

Rural Practitioner Tax Credit

Potential Amount:  $5,000, nonrefundable.

Terms:  You need to apply for the credit every year through the Office of Rural Health.  The eligibility rules are somewhat convoluted, but notable, you need to work at least 20 hours a week, and your gross income must be below $300,000 unless you are a general surgeon, OB/GYN, or an EM physician working in a frontier area, and you must be willing to take Medicare/Medicaid patients.  Lastly, the maximum credit varies with the distance from a metropolitan area (there are some very handy maps here).

UTAH

Utah has three(!) refundable tax credits for psychiatrists!

Potential Amount:  for all three credits - $10,000 per year, refundable, for up to ten years!

Terms (for all three credits):  You need to submit an attestation form to the Division of Professional Licensing, which will then issue a certificate.  Must be board-eligible or board-certified.

Specific credit criteria:

New Practice:  Must be new to Utah, have obtained a license in Utah, and practice for 30 hours per week.

Underserved:  You need to work an average of 30 hours per week, and at least 25% of those must be in an underserved county.  The bigger cities, such as Salt Lake City, Ogden, Provo,and St. George don’t qualify, but most other counties do.

Volunteer Retired Psychiatrist:  You need to provide 300 hours of uncompensated care to homeless persons, veterans, Native Americans, or individuals in underserved areas.

In addition to being refundable, you can certainly claim more than one of these credits in a given year.  Is it possible to claim all three?  Nothing in the statutes tells me otherwise, though in reality, I don’t see many psychiatrists moving to Utah to see underserved patients for free.  Notwithstanding that, this appears to be one of the most generous physician credits at the state level in this country (certainly, the most generous that I’m aware of).  I just wish it was offered to other specialties!

TaxSmart Takeaway

These tax credits are worth knowing about, not because they move the financial needle, but because they may help you make decisions on the margins.
If you’re a new residency graduate, have a proclivity for wide open spaces, or looking to help underserved populations or train the next generation of practitioners, there are states who would be happy to reward you for it.  If your heart is not set on practicing in a particular state or locality, they clearly want to nudge you to work there.

If you think you may be eligible for one of these credits, they can be tricky to claim.  If you work with a tax advisor (preferably one who has dealt with them before), make sure they know the process and timeline for them.

Special Trivia Question!

What major event of the 20th century resulted in the system of income tax withholdings we have today?

A. World War I
B. The Great Depression
C. World War II
D. The Cuban Missile Crisis
E. The Hamburglar’s Birthday

Click here for the answer!