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Students and higher education institutions have frequently asked the IRS how pandemic-related emergency financial aid grants will be treated, and now the IRS has answered. The IRS released a news update to inform the concerned students and institutions to resolve this question.

According to the IRS, the emergency financial aid grants made by a federal agency, state, Indian tribe, higher education institutions or scholarship-granting organizations, including tribal organizations, to a student because of COVID-19 will not be included in the student’s gross income. The student should also not reduce the amount of qualified tuition and related expenses by the amount of an emergency financial aid grant because they may be eligible to claim a tuition and fees deduction, the American Opportunity Credit, or the Lifetime Learning Credit on their tax return.

As for higher education institutions, they are not required to file or furnish Forms 1099-MISC reporting the grants made available by the Coronavirus Aid, Relief, and Economic Security (CARES) Act or the COVID Relief Act and do not need to report the grants in Box of Form 1098-T. However, any amounts that qualify for the tuition and fees deduction or the American Opportunity Credit or Lifetime Learning Credit are considered “qualified tuition and related expenses” and will need to be reported with Internal Revenue Code section 6050S. The institutions must include the qualified tuition and related expenses paid by the emergency financial aid grants awarded to students in Box 1 of Form 1098-T.

If you need help with your 2020 taxes, please contact Lakeesha Browne, CPA.

“Emergency Aid Granted to Students Due to COVID is Not Taxable.” IRS, 30 Mar. 2021, https://www.irs.gov/newsroom/emergency-aid-granted-to-students-due-to-covid-is-not-taxable

Accessed 2 Apr. 2021.