The IRS recently issued frequently asked questions (FAQs) on how students and higher education institutions should report COVID-19-related emergency financial aid grants.
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 because of an event related to COVID-19 are not included in the student’s gross income.
In addition, students should not reduce an amount of qualified tuition and related expenses by the amount of an emergency financial aid grant. If students used any portion of the grants to pay for qualified tuition and related expenses on or before Dec. 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. See this set of IRS education FAQs.
The tuition and fees deduction is not available for tax years beginning after Dec. 31, 2020. For additional information on these credits, and the tuition and fees deduction, see Publication 970, Tax Benefits for Education.
Higher education institutions
Because students don’t include emergency financial aid grants in their gross income, 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.
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 trigger the reporting requirements of Internal Revenue Code Sec. 6050S. 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.
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