As some students receive their COVID-19 emergency aid, the Internal Revenue Service (IRS) said those funds are not included in students' gross income when they report it for their taxes.
The information was put out in a press release from the IRS on March 30.
“Emergency financial aid grants made by a federal agency, state, Indian tribe, higher education institution or scholarship-granting organization (including a tribal organization) to a student are not included in the student's gross income,” the release stated.
This means those grants and funds received are not taxable.
The release also stated students should not reduce the amount of qualified tuition and related expenses by the amount of emergency financial aid received.
Students may also be eligible for a deduction if they used a portion of their grants to pay for tuition.
“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 their 2020 tax return,” the release stated.
The deduction is not available for tax years that begin after Dec. 31, 2020. More information about education and aid received can be found on the IRS website.
Also, because students do not include emergency aid grants in their gross income, the release stated 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 (CARES Act) or the COVID-related Tax Relief Act (COVID Relief Act) and do not need to report the grants in Box 5 of Form 1098-T.”
If a student qualifies for the deduction, it will still trigger certain reporting requirements.
“But 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 trigger the reporting requirements of Internal Revenue Code section 6050S,” the release stated. “Higher education institutions must include qualified tuition and related expenses paid by emergency financial aid grants awarded to students in Box 1 of Form 1098-T.”