Updated 5/18/2021
Higher Education Emergency Grants Frequently Asked Questions
The IRS updated FAQs that addressed the taxability of the grants, use as expenses for tuition and fees deductions, treating the cost of these items as qualifying education expenses to claim the American Opportunity Credit or the Lifetime Learning Credit, and reporting requirements:
Students
Emergency financial aid grants are not taxable for students who received the grants:
Under sections 3504, 18004, or 18008 of the CARES Act for unexpected expenses, financial need, or expenses related to the disruption of campus operations due to COVID-19 pandemic
Under section 314 of the CRRSAA or section 2003 of the ARP for a component of the cost of attendance, unexpected expenses, unmet financial need, or expenses related to the disruption of campus operations due to the COVID-19 pandemic
From a Federal agency, State, Indian tribe, institution of higher education, or scholarship-granting organization (including a tribal organization) because of an event related to the COVID-19 pandemic
You can claim the American Opportunity Credit if you otherwise meet the requirements for the credit if you used the emergency financial aid grants to pay for course-related books, supplies, and equipment that are now required for online learning because your college or university campus is now closed, when books, supplies, and equipment did not have to be purchased from your college or university, but you can't claim a Lifetime Learning Credit or a tuition and fees deduction if you are not required to purchase the books, supplies, and equipment from your college or university.
For more information on these credits and the tuition and fees deduction, see Publication 970, Tax Benefits for Education.
You can claim the American Opportunity Credit or the Lifetime Learning Credit for emergency financial aid grants used to pay for course-related books, supplies, and equipment that are now required for online learning because your college or university campus is closed, if the books, supplies, and equipment must be purchased from your college or university if you otherwise meet the requirements for the credits. If you don't claim one of those credits, you can claim a deduction for tuition and fees for these expenses paid on or before December 31, 2020. The tuition and fees deduction is not available for tax years beginning after December 31, 2020.
Higher Education Institutions
Higher education institutions do not have any requirements under to report information on Form 1099-MISC for emergency financial aid grants awarded to students under section 3504, 18004, or 18008 of the CARES Act, under other provisions of the CARES Act, section 314 of the COVID Relief Act, or section 2003 of the ARP, or otherwise in response to the COVID-19 pandemic. They are not required to file or furnish Forms 1099-MISC reporting the emergency financial aid grants.
For tax year 2021, higher education institutions do have information reporting requirements under section 6050S for payments made with emergency financial aid grants to report information on Form 1098-T for emergency financial aid grants awarded to students under section 3504, 18004, or 18008 of the CARES Act, or otherwise in response to the COVID-19 pandemic (including under other provisions of the CARES Act, section 314 of the COVID Relief Act, or section 2003 of the ARP) As described in A4 and A5 above, a student may claim a deduction or one of the education credits if the student and the expenses otherwise qualify for the deduction or credit. Any amounts that qualify for the tuition and expense deduction, or the American Opportunity or Lifetime Learning credits are “qualified tuition and related expenses” (QTRE) and trigger the reporting requirements of section 6050S. Higher education institutions must report total QTRE, including QTRE paid with emergency financial aid grant funds, in Box 1 of Form 1098-T, Tuition Statement.
Higher education institutions do not need to separately identify the portion of QTRE paid with the emergency financial aid grants anywhere on Form 1098-T, nor do they need to report the grants themselves in Box 5 of Form 1098-T regardless of whether the higher education institution paid the emergency financial aid grants to the students, who then used grant money to pay for QTRE or applied grant money directly to a QTRE on a student’s account.
Resources:
Higher Education Emergency Grants Frequently Asked Questions