The Segal AmeriCorps Education Award, unlike most other forms of scholarships and fellowships, is subject to federal tax in the year the 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. When and how much of the education award you redeem 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 one calendar year, you will be responsible for any taxes owed on that portion. Interest that is paid on qualified students loans is also subject to income taxes in the year it is made to the loan holder.
The Trust DOES NOT deduct taxes from your education award or interest payments. If your education award and interest payments total more than $600 in a calendar year, in January of the following year, CNCS will send you a Form 1099 to be used in preparing your income tax return. The total sum of interest payments and the Segal AmeriCorps Education Award payments are listed together on the 1099 form.
You are responsible for any 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 living allowance in 2010 and the rest in year 2011, the portion received in 2010 is subject to 2010 income taxes, and the portion received in 2011 is subject to 2011 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 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 members who are using education awards to pay for current educational expenses or to repay qualified student loans.