Americorps Living Allowance & Education Award
A.G. Kalman
handled.
Americorps is the umbrella organization for a variety of
national service organizations. A volunteer who signs on
for a specified period is paid a living allowance that can
range from $10K to $12K for 10.5 monhs of service. They also
receive medical insurance. They are also eligible for child
care payment if a child resides with them. Lastly, they are
eligible for an education award of up to $4725 at the end of
their service. The award can be used to pay off student
loans, pay for current higher education or pay expenses in a
school-to-work program. Eligible expenses include tuition,
fees, books, room & board, etc.
All the documentation that you find with all the Americorps
organizations say the following: The living allowance is not
a wage. It does not fluctuate based on the number of hours a
volunteer serves in a given period. It is credited to the
volunteers checking account bi-weekly. It is taxable income.
Relative to the education award, the documentation also says
it is taxable income in the year received regardless of how
it is used. A volunteer who incurs education expenses that
meet the definition of qualified educational expenses for
the Education Credits and Tuition deduction are free to make
use of those benefits if they pay with the education award.
(This makes sense if the award is taxable income.) It seems
to me that the living allowance is taxable compensation for
services rendered and should be entered on Line 7 of the
1040. It also seems to me that the education award is
taxable compensation for services rendered rather than a
taxable scholarship and it should also be entered on Line 7.
Lastly, as taxable compensation, it meets the definition of
earned income for purposes of making an IRA contribution and
for purposes of the EITC.
Opinions or hard facts would be appreciated.
P.S. I have no idea what IRS forms, if any, are provided to
volunteers to identify these payments.
Alan
http://pages.prodigy.net/agkalman/
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Marie Murrell
> I am seeking opinions on how the subject payments should
> be handled.
>
> P.S. I have no idea what IRS forms, if any, are provided
> to volunteers to identify these payments.
After my initial post I found this web sight. It and it's
links were helpful to me.
http://www.americorps.org/members/resource/education/benefits.html
--
Marie L. Murrell, CPA MBA
Answers provided, are just make-believe, in response
to incomplete information, and therefore should
NEVER be relied on!
Marie Murrell
> I am seeking opinions on how the subject payments should
> be handled.
> Opinions or hard facts would be appreciated.
> P.S. I have no idea what IRS forms, if any, are provided
> to volunteers to identify these payments.
I have a client who is an AmeriCorps worker. She received a
W-2 for what she calls "living allowance". The check is
deposited into her account every two weeks as you suggested.
The "living allowance" is reported in W-2 box 1(wages) .
What is peculiar, is that all other boxes on the W-2 are
blank. The W-2 reports zero SS wages, zero Medicare wages,
and zero state wages.
In addition, my client was paid an amount for an "AmeriCorps
education award". The letter attached said "We are sending
you this letter and an IRS form 1099 because the Corporation
of National and Community Service made a payment on your
behalf during the tax year 2002". The letter goes on to
guide the recipient toward a tax professional to weed
through the taxability of the award, and deductibility of
education credits.
The 1099 MISC received had the "education award" reported in
box 3 (other income)
I have included the W-2 on line 7 of the 1040, and the 1099
MISC box 3 amount on line 21 (Other Income).
I am looking for advice on any state tax exemptions. The
W-2 wages and the 1099 MISC had no federal or state
withholdings. The client is now seriously under-withheld
(particularly for State of Oklahoma).
Marie L. Murrell, CPA MBA
<< ---------------------------------------------->>
Michael T Wing CPA
> The "living allowance" is reported in W-2 box 1(wages) .
> What is peculiar, is that all other boxes on the W-2 are
> blank. The W-2 reports zero SS wages, zero Medicare wages,
> and zero state wages.
That's not surprising as the amounts are undoubtedly exempt
from FICA taxation. Ditto as to why the 1099 reported in box
3 rather than 7.
The interesting thing about the W-2 is that the amount
presumably *would* be considered "earned" for EIC and IRA
purposes (unless some other provision specifically gets in
the way).
MTW
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A.G. Kalman
>> The "living allowance" is reported in W-2 box 1(wages) .
>> What is peculiar, is that all other boxes on the W-2 are
>> blank. The W-2 reports zero SS wages, zero Medicare wages,
>> and zero state wages.
> That's not surprising as the amounts are undoubtedly exempt
> from FICA taxation. Ditto as to why the 1099 reported in box
> 3 rather than 7.
>
> The interesting thing about the W-2 is that the amount
> presumably *would* be considered "earned" for EIC and IRA
> purposes (unless some other provision specifically gets in
> the way).
After studying this for awhile, I've come to the following
assessment:
The living allowance is properly reported in Box 1 of a W-2.
It fails the test in IRC SEC. 3121 defining wages and
therefore is not subject to soc. sec. or medicare taxes. I
consider it to be taxable other compensation and would use
the amounts for both IRA contributions and the EITC.
The education award is the interesting payment. At first I
thought it was a taxable scholarship as it represented
payment only if the volunteer rendered certain services.
However, the rules require that such payments be reported on
a W-2 as it would be other taxable compensation. Box 7 is
wrong as that implies the volunteers are self-employed,
which they aren't. By placing the amount in Box 3, the
organization appears to be saying it is just a prize or
award that does not relate to payment for services. This
doesn't make sense to me based on all the literature that is
available on this "education award."
For example:
In order to get the award you have to complete 1700 hours of
service over a year or less. A reduced award is available
for at least 900 hours. There are also smaller awards for
reduced part-time service during the summer months. The
awards can only be used for certain expenditures that are
all education related: Repay current or future student
loans; pay for current educational expenses to attend an
eligible educational institution (same definition as that
used for the ed. credits); or pay expenses while
participating in an approved school-to-work program.
It just seems to me that this is a taxable scholarship that
should have been reported on a W-2.
I am inclined to treat it as such and enter the amounts on
Line 7. It would then be taxable other compensation for
services and also trigger IRA and EITC eligibility.
Comments... anyone?
Alan
http://pages.prodigy.net/agkalman/
Michael T Wing CPA
> It just seems to me that this is a taxable scholarship that
> should have been reported on a W-2.
I have very little background/experience in this area. But,
wouldn't the fact that the living allowance is reported on
W-2 cover the fact that services were rendered? IOW, the
so-called living allowance is the payment for services
(clearly taxable) and the education award is a scholarship
(exempt to the extent used for qualifying expenses).
According to Pub 590, scholarships are "compensation" for
IRA purposes only if reported on W-2. Since a portion of the
total remuneration paid to the volunteer has been allocated
to the W-2, hasn't this situation been (arguably) properly
handled? I could see a much bigger issue if *nothing* was
reported on a W-2.
> Comments... anyone?
We need a constitutional amendment stating that the federal
government cannot hand out funds to individuals without
accompanying same with a definitive statement concerning the
taxability of the funds! <g>
MTW
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Marie Murrell
> W-2 cover the fact that services were rendered? IOW, the
> so-called living allowance is the payment for services
> (clearly taxable) and the education award is a scholarship
> (exempt to the extent used for qualifying expenses).
I have to agree with MTW. Particulary because in my case,
the tuition award was paid directly to the institution. I
do not know if that is the case always, but my client had to
provide the necessary information to Americorps for them to
pay direcetly.
> According to Pub 590, scholarships are "compensation" for
> IRA purposes only if reported on W-2. Since a portion of
> the total remuneration paid to the volunteer has been
> allocated to the W-2, hasn't this situation been
> (arguably) properly handled? I could see a much bigger
> issue if *nothing* was reported on a W-2.
>> Comments... anyone?
> We need a constitutional amendment stating that the
> federal government cannot hand out funds to individuals
> without accompanying same with a definitive statement
> concerning the taxability of the funds! <g>
Aaaaaamen!
--
Marie L. Murrell, CPA MBA
Answers provided, are just make-believe, in response
to incomplete information, and therefore should
NEVER be relied on!
<< ------------------------------------------------->>
A.G. Kalman
>> It just seems to me that this is a taxable scholarship that
>> should have been reported on a W-2.
> I have very little background/experience in this area. But,
> wouldn't the fact that the living allowance is reported on
> W-2 cover the fact that services were rendered? IOW, the
> so-called living allowance is the payment for services
> (clearly taxable) and the education award is a scholarship
> (exempt to the extent used for qualifying expenses).
>
> According to Pub 590, scholarships are "compensation" for
> IRA purposes only if reported on W-2. Since a portion of the
> total remuneration paid to the volunteer has been allocated
> to the W-2, hasn't this situation been (arguably) properly
> handled? I could see a much bigger issue if *nothing* was
> reported on a W-2.
>> Comments... anyone?
> We need a constitutional amendment stating that the federal
> government cannot hand out funds to individuals without
> accompanying same with a definitive statement concerning the
> taxability of the funds! <g>
There hasn't been any allocation. There are two specific
payments identified to the volunteers. One is a living
allowance that they are paid on a regular schedule that
shows up on a W-2. The other payment is a one-time education
award made at the end of their work schedule and it is based
upon them peforming the requisite number of hours. It just
seems to me that the education award (see prior post if not
above) looks like a scholarship, smells like a scholarship,
quacks like a scholarship and walks like a scholarship and
should have been reported on a W-2.
Your reference to Pub 590 has me bewildered. I assume you
meant to say "520", the Scholarship & Fellowship pub. I
read the language in that Pub, and it doesn't say it's
compensation only if reported on a W-2. It says:
"If your only income is a completely tax-free scholarship or
fellowship, you do not have to file a tax return and no
reporting is necessary. If all or part of your scholarship
or fellowship is taxable and you are required to file a tax
return, report the taxable amount as explained next. You
must report the taxable amount whether or not you received a
Form W –2. If you receive an incorrect Form W –2, ask the
payer for a corrected one."
Here's what it says about services rendered:
"Payment for services. Generally, you must include in income
the part of any scholarship, fellowship, or tuition
reduction that represents payment for past, present, or
future teaching, research, or other services. This applies
even if all candidates for a degree must perform the
services to receive the degree."
Complete details on the award are at:
http://www.americorps.org/members/resource/education/awardinfo.html
Alan
http://taxtopics.net
Michael T Wing CPA
> Your reference to Pub 590 has me bewildered. I assume you
> meant to say "520", the Scholarship & Fellowship pub. I
> read the language in that Pub, and it doesn't say it's
> compensation only if reported on a W-2.
See Pub 590, page 9, under "What is Compensation?"
MTW
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A.G. Kalman
>"Michael T Wing CPA" <mtwi...@yahoo.com> wrote:
>> A.G. Kalman <agka...@prodigy.net> wrote:
>> W-2 cover the fact that services were rendered? IOW, the
>> so-called living allowance is the payment for services
>> (clearly taxable) and the education award is a scholarship
>> (exempt to the extent used for qualifying expenses).
> I have to agree with MTW. Particulary because in my case,
> the tuition award was paid directly to the institution. I
> do not know if that is the case always, but my client had to
> provide the necessary information to Americorps for them to
> pay direcetly.
Just another reason why it sounds like a taxable
scholarship! Awrads and prizes are paid to the recipient.
Alan
http://taxtopics.net