When the various bills that became the Edward M. Kennedy Serve America Act were in play, there was talk about eliminating the taxes from the Segal AmeriCorps Education Award.
In case you are new to national service, the education award is the post-service benefit received by AmeriCorps and VISTA members that can help them pay for educational expenses and/or student loans. It’s considered taxable income.
It was never the Kennedy bill but rather a separate bill introduced by Senator Dodd of Connecticut that would have ended the tax on the education award. Late in the process, elements of Dodd’s national service bills were incorporated into the Serve America Act. However, the elimination of the taxes on the education award was not one of those elements. The tax remains.
I called Senator’s Dodd office last week and asked a staffer if there were any plans to follow through with legislation that addresses the tax. The staffer told me there are none scheduled at this time.
Yet there is hope! Take a look at this bill, H.R. 1596, introduced in the House of Representatives in March by Rep. John Lewis (D-GA) that would affect the taxability of the Education Award, as would provisions in Dodd’s 2009 Senate bill S. 464.
Here are a few other elements of the Serve America Act of interest to current AmeriCorps and VISTA members, as well as those intending to enroll in the programs in the near future:
- Changes to the education award and other member benefits won’t occur until later. Members enrolling in fall 2010 might be the first to receive the new education award.
- The value of the new education award will be equal to the maximum amount of a federal Pell Grant. Presently, this is in the ballpark of $5,300 but may increase or decrease by the time the new education awards are issued.
- There will be limited transferability of the new education award. Members 55 and older can give their awards to their own children, a grandchild, or foster child.
- It appears at present that the new education award might cover a wider variety of education expenses and schools and that it might repay a wider range of student loans.
- When the changes take effect, a member will be able to earn up to two full education awards. A member will be able to serve multiple part-time, Summer of Service, Silver Scholar, or Summer Associate-type terms and receive education awards for each up to the amount of two full awards.
The New Service 
So, if we have an education award that we’re sitting on in the hope of avoiding taxation, should we keep doing that or should we just buck up and spend it/get taxed?
That’s a tough one. If the tax does go away, it might take a year or two for that to kick in, and past ed awards might not be included. In the meantime, tuition rates will increase and student loan interest will compound. If you spread the ed award over more than one year, you might lessen the taxes you pay on it. And be sure to use Form 1040 when filing taxes to take advantage of education tax credits and student loan interest deductions, which help ease the cost of the taxes on the education award.