The Internal Revenue Service released a set of
For students, emergency financial aid grants made by federal agencies, states, Indian tribes, higher education institutions or scholarship-granting organizations due to an event related to the pandemic don’t need to be included in their gross income. Students shouldn’t reduce the amount of their qualified tuition and related expenses by the amount of an emergency grant. If students used any part of the grants to pay for qualified tuition and related expenses on or before Dec. 31, 2020, they could be eligible to claim a tuition and fees deduction or the American Opportunity Credit or Lifetime Learning Credit on their 2020 tax return.
The tuition and fees deduction isn’t available, however, for tax years starting after Dec. 31, 2020, at least under current law. For more details on tax benefits for education, see
The guidance comes as students and educational institutions struggle to sort out the various pandemic aid and tax relief programs provided by the federal government, and their tax obligations.
For colleges and universities, the IRS advised them that because students don’t include emergency financial aid grants within their gross income, “higher education institutions are not required to file or furnish Forms 1099-MISC reporting the grants made available by the CARES Act or the COVID-related Tax Relief Act and do not need to report the grants in Box 5 of Form 1098-T."
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.
However, colleges and universities still need to include the qualified tuition and related expenses paid by emergency financial aid grants awarded to students within Box 1 of Form 1098-T.
