Need accountant or tax lawyer for question?

[AprilBaby]

My daughter served two years in americorps and finished with a $11,000 educational grant she applied to her federal loans. We understand it is federally taxable when she takes the loan. Does she owe SOcial security tax on it or not? She made about $19,000 last year and then $11,000 grant . She owes $2000 in tax if she needs to pay SS, she only has $2200 in savings. What a rip off to college students! Spend two years volunteering for America (basically), never actually seeing any of the $11,000 and the being made to pay all she has in tax.
Calling americorps gets you no where and a friend who is retired IRS can't find the answer online.... Anyone?????

 

[Dee*Jay]

Aprilbaby, I want to make sure I understand your question because I can read it in two ways. Are you asking if your daughter has to pay income tax on the amount of the grant? Or do you already know that she does and you're asking if she has to pay Social Security on it?

Here is a link specific to AmeriCorps Education Awards: http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Interest,-Dividends,-Other-Types-of-Income/1099-MISC,-Independent-Contractors,-and-Self-Employed/1099-MISC,-Independent-Contractors,-and-Self-Employed-5

I am making the assumption that the grant money was received in return for the work that she did. If that is a correct assessment Publication 970 goes into more depth on the concept of grants being treated as payments for services, and therefore income. http://www.irs.gov/publications/p970/ch01.html#en_US_2013_publink1000177991

Did your daughter receive a 1099-MISC?

ETA: I'm not familiar with the program so please forgive me if this is a stupid question: Was your daughter done with her four year degree at the time she served or is the work that she performed counting toward her degree? There is a student exception to FICA taxes but it applies if the person is still pursuing a degree: http://www.irs.gov/Charities-&-Non-Profits/Student-Exception-to-FICA-Tax

 

[momhappy]

I worked for Americorps for a couple of years after graduating for college. It was a wonderful experience. Not only did it allow me to get a job within my college degree, but I also earned money that I could apply to my student loans. I earned a very small income while woking for Americorps, but it was worth it (you have to weigh out the advantages and disadvantages). I don't think that it's fair to say that it's a "rip off" - I assume that your daughter wasn't forced to work there, so it was a choice that she made.

 

[AprilBaby]

Does she have to pay SS on it. I think we are reading if she applied it to loans she does not pay SS, but if she took it as cash, she does have to pay SS. Very confusing. Yes, she has 4 yr BA and the two years of service in americorps.
She had three choices:
1. Take it in cash...big taxes taken out
2. Use it for graduate school
3. Apply it towards federal loans

She chose # 3 because she wants to get assistant ships for grad school and lower the amt of her current federal loans.
If SS is taxed she owes $2000, if not, she gets a refund or owes very little. ( from what I am understanding)

 

[AprilBaby]

I worked for Americorps for a couple of years after graduating for college. It was a wonderful experience. Not only did it allow me to get a job within my college degree, but I also earned money that I could apply to my student loans. I earned a very small income while woking for Americorps, but it was worth it (you have to weigh out the advantages and disadvantages). I don't think that it's fair to say that it's a "rip off" - I assume that your daughter wasn't forced to work there, so it was a choice that she made.

I am in no way saying americorps was a rip off, it was the best experience of her life! What I think is a rip is to have the student live in poverty, award them a grant, and then govt taxes the grant.

 

[momhappy]

^I understand what you mean. I guess that I viewed as part of my college experience (even though I had already graduated). I had lived in poverty all they way through college (I put myself through college - absolutely no financial assistance from my parents), so what was another few years? Besides, many college grads have to work internships, crummy jobs, etc. before landing something that will actually start providing them an income that does more than just pay the bills.

 

[diamondseeker2006]

Seems to be a question that others ask as well:

http://www.asktaxguru.com/6254-americorps-income.html

 

[AprilBaby]

^I understand what you mean. I guess that I viewed as part of my college experience (even though I had already graduated). I had lived in poverty all they way through college (I put myself through college - absolutely no financial assistance from my parents), so what was another few years? Besides, many college grads have to work internships, crummy jobs, etc. before landing something that will actually start providing them an income that does more than just pay the bills.

Congratulations on your service to your country! I wish more college students would consider americorps. Certainly safer than peace corps right now!

 

[AprilBaby]

Seems to be a question that others ask as well:

http://www.asktaxguru.com/6254-americorps-income.html

Thank you for that link! Finally an answer!