IRS confirms emergency relief grants to students are not reported on Form 1098-T (COVID-19)

IRS confirms emergency relief grants

The IRS has updated a set of “frequently asked questions” (FAQs) concerning certain emergency relief grants paid to students in response to the coronavirus (COVID-19) pandemic under the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) (Pub. L. No. 116-136, enacted March 27, 2020).

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The FAQs (updated December 14, 2020) have been updated to clarify that these emergency financial aid grants paid to students under the CARES Act do not need to be reported by higher education institutions on Form 1098-T, Tuition Statement.
 

Text of new FAQ (December 2020)

Q3: Do higher education institutions have any information reporting requirements under section 6050S for emergency financial aid grants awarded to students under section 3504, 18004, or 18008 of the CARES Act? (added December 14, 2020)

A3: No. The emergency financial aid grants are qualified disaster relief payments, as described in A1 above, and are not included in students' gross income. As noted in A2 above, students may not claim deductions or credits for these amounts. The reporting of these grants to the IRS on Forms 1098-T could result in the issuance of underreporter notices (Letters CP2000) to students and furnishing such Forms 1098-T to students could cause confusion. Thus, the IRS will not require that these grants be reported pursuant to section 6050S of the Internal Revenue Code on Form 1098-T.

Background

Provisions of the CARES Act allow higher education institutions to use certain funds:

  • To support students and higher education institutions with expenses and financial needs related to the COVID-19 pandemic
  • To support graduate and undergraduate students experiencing “unexpected expenses and unmet financial need” as the result of the COVID-19 pandemic

The CARES Act further directs the Secretary of Education to allocate certain funds to higher education institutions to directly support students facing urgent needs related to the COVID-19 pandemic, and to support institutions as they cope with the immediate effects of the COVID-19 pandemic, including school closures. Recipient higher education institutions must pay no less than 50% of these funds to students as emergency financial aid grants.
 

For more information, contact a tax professional with KPMG’s Washington National Tax practice:

Ruth Madrigal | +1 202 533 8817 | ruthmadrigal@kpmg.com

Preston Quesenberry | +1 202 533 3985 | pquesenberry@kpmg.com

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