The Internal Revenue Service updated its frequently asked questions page Tuesday on higher education emergency grants for pandemic-related financial aid, with new information for students and educational institutions.
The CARES Act of 2020 allowed colleges and universities to use some of the funds they had been allocated by the Department of Education to support students and institutions with expenses and financial needs related to the COVID-19 pandemic, including emergency financial aid grants to support undergraduate and graduate students experiencing "unexpected expenses and unmet financial need" as the result of the pandemic.
In March of last year, the IRS posted a FAQ page with guidance on how students and higher education institutions should report those pandemic-related emergency financial aid grants. On Tuesday, the IRS updated the page with two new sets of questions and answers.
The first one is aimed at students, citing an example of a question a student might have if their institution is using federal funds under the CARES Act, the CRRSAA (Coronavirus Response and Relief Supplemental Appropriations Act), or the ARP (American Rescue Plan) to cancel or discharge their overdue balances, such as for tuition and fees, and who wants to know if the amount of the discharge should be included in the student’s gross income.
The IRS’s answer is no. “If your institution is using federal funds to cancel or discharge your overdue balance for tuition and fees, your debt is being paid by the federal government and such payment generally would be included in your gross income,” said the IRS. “However, because your debt is being paid by the federal government in response to the COVID-19 pandemic, the amounts paid by the federal government, including grants used to pay an overdue balance for tuition and fees owed to the institution, are not included in your gross income.”
The other question is aimed at college and universities, asking whether higher education institutions have any requirements under Section 6041 of the Tax Code to report information on Form 1099-MISC if the institutions use federal funds under the CARES Act, the CRRSAA or the ARP to pay the students’ overdue balances for tuition and fees.
Again, the IRS’s answer is no. “Higher education institutions do not have information reporting requirements under Section 6041 when using these federal funds to pay students’ overdue balances for tuition and fees,” said the IRS. “These payments are not included in students’ gross income. Because the payments are not income, section 6041 does not apply to them, and higher education institutions are not required to file or furnish Forms 1099-MISC, Miscellaneous Income, reporting the payments.”
