Tax Implications for the Education Award
The Segal-AmeriCorps Education Award, unlike most other forms of scholarships and fellowships, is subject to federal tax in the year each payment is made. It is considered taxable income regardless of whether it’s used for current educational expenses or to repay a qualified student loan.
Interest that is paid on qualified students loans is also subject to income taxes in the year the payment is made to the loan holder. Interest payments are payments that were made on your behalf for the interest that accrued on your qualified student loans while you were serving. These payments are made in addition to your education award and are not taken from your education award balance.
During each calendar year, the amount of the education award that you use, as well as any interest payments made on your behalf, may have an impact on your overall income tax responsibility.
If you use the entire amount of your education award in one calendar year, you must include the entire amount as income on your taxes for that year. If you redeem only a portion of your education award in a calendar year, you will be responsible for any taxes owed on that portion. If you do not use any of your award in a particular year, you do not include any part as income. All interest payments made on your behalf should be included as income in the year the payment was made.
The Trust DOES NOT withhold taxes from your education award or interest payments. If your education award and interest payments total more than $600 in a calendar year, CNCS will send you an IRS Form 1099 to be used in preparing your income tax return. The sum of both interest payments and education award payments that were made during that calendar year will be added together and the sum listed on the 1099 form. That form will be sent to you in January of the following year.
You are responsible for income taxes owed on any AmeriCorps living allowances you receive. The living allowance amount received in a calendar year is subject to income taxes for that calendar year. For example, if you receive a portion of your living allowance in 2014 and the rest in year 2015, the portion received in 2014 is subject to 2014 income taxes, and the portion received in 2015 is subject to 2015 income taxes.
After the calendar year in which you earned any living allowance, your AmeriCorps project will send you a W-2 form indicating the amount of the allowance you earned in that year. Most AmeriCorps State and National members receive their W-2s from their sponsoring organizations. VISTA and AmeriCorps NCCC members receive their W-2 forms from CNCS.
While you are responsible for taxes on your education award and other AmeriCorps benefits, you may be eligible for other tax relief through the Taxpayer Relief Act of 1997. Issues about income taxes are very complicated. The important point to remember is that you should consider the tax consequences of any decisions you make about when and how to use your education award. Contact a tax professional or the Internal Revenue Service for details.
IRS Publication 970, Tax Benefits for Education explains tax benefits that may be available to taxpayers who are paying for their higher educational expenses or repaying student loans. AmeriCorps members who have used their education awards and have had interest payments made on their behalf, may be eligible for these deductions.