Question of the Week

Question: We are wondering how Individual Development Accounts (IDAs) affect taxes? Are IDAs reported on returns? Do participants have to report matching funds received as income?

Answer:

• Interest earned by an IDA project participant on funds deposited in a personal account is included in gross income on a tax return. Typically, the amount of interest earned in an IDA, however, is too small to affect the amount of tax owed.
• Deposits to the IDA account are not new income to report. They are already included in gross income because these deposits are accounted for through other documentation, a wage and tax statement or business income report, for example.
• Project participants may exclude, as a gift, funds disbursed for a qualified expense. A participant for whom match funds are expended for an allowable asset purchase does not have to report the match funds as income.

For more information see the IRS Bulletin No. 1999-44 (PDF). For information on other topics, contact the AFI Resource Center: 1-866-778-6037 or info@idaresources.org.

This article originally ran in the IDAresources.org Update Newsletter on 01/14/10 and is available for archival purposes.
For updated information on asset building and the AFI program, please see www.IDAresources.org.