IRS Issues Guidance as to Pandemic-Related Aid Grants

Abstract

The IRS announced, on March 30, that emergency financial aid grants made by higher education institutions, federal or state agencies, or other scholarship-granting organizations to students because of an event related to the COVID-19 pandemic are not included in the students’ gross income (IR-2021-70).

Also, the IRS stated, students should not reduce an amount of qualified tuition and related expenses by the amount of an emergency financial aid grant. The agency said that, if students used any portion of the grants to pay for qualified tuition and related expenses on or before December 31, 2020, they may be eligible to claim a tuition and fees deduction or the American Opportunity Credit or Lifetime Learning Credit on the 2020 tax return. (The tuition and fees deduction is not available for tax years beginning after December 31, 2020.)

Because students do not include these emergency financial aid grants in their gross income, the IRS said that higher education institutions are not required to file or furnish Forms 1099-MISC reporting the grants made available by the Coronavirus Aid, Relief, and Economic Security Act or the COVID-related Tax Relief Act and do not need to report the grants on Form 1098-T (box 5).

But any amounts that qualify for the tuition and fees deduction or the two credits are considered qualified tuition and related expenses and thus trigger the reporting requirements (IRC § 6050S). Higher education institutions must include qualified tuition and related expenses paid by emergency financial aid grants awarded to students in Form 1098-T (box 1).