Your ed award and taxes
What you need to know about taxes (that's not in the Beatles' song)
The education award, unlike most other scholarships and fellowships, is subject to federal tax in the year the Trust pays the voucher. Living allowances received during your term of service and any interest the Trust paid on qualified student loans are also subject to income taxes in the years they were paid. When you redeem your education award—and how much you redeem—may have an impact on the amount of income tax you owe.
If the Trust makes a payment on qualified student loans to your school or lender for the entire amount of a full-time education award ($4,725) in one calendar year, you will be responsible for any income taxes owed in that calendar year on that amount. 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.
The interest payments the Trust makes on postponed qualified student loans are subject to income taxes in the calendar year in which the payments are made to the lender.
The Trust DOES NOT deduct taxes from your education award or interest payments. After the calendar year in which the payments are made, you will receive a Form 1099 from the Trust that shows the total amount of your education award and any interest paid on your behalf. You will need this information to prepare your income tax return. For more information on the 1099, go to the AmeriCorps Web site page on tax information.
Living allowance
You are responsible for any income taxes owed on any AmeriCorps or VISTA living allowances you receive. The living allowance received in a calendar year is subject to income taxes for that calendar year. For example, if you receive half of your $10,000 living allowance in 2002 and half in 2003, the $5,000 received in 2002 is subject to 2002 income taxes, and the $5,000 received in 2003 is subject to 2003 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 you earned that year. Most VISTA and AmeriCorps*NCCC members receive their W-2 forms from the Corporation.
Tax relief
While you are responsible for taxes on your education award and other AmeriCorps or VISTA benefits, you may be eligible for tax relief through the Taxpayer Relief Act of 1997. See the AmeriCorps Web site page on tax credits or the U.S. Department of Education's page on the Hope Scholarship for more information. (Taxation on the VISTA post-service cash stipend is slightly different from to the education award taxes. Further information for VISTAs is available in pdf format.
Issues about income taxes are very complicated. The important point to remember is that you should consider the tax consequences when making any decisions about when and how to use your education award.
