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Higher Ed Praises IRS Answer on Emergency Grants

Posted on May 11, 2020

The higher education community is welcoming confirmation from the IRS that grants to help college students meet non-tuition expenses during the coronavirus pandemic aren’t taxable.

Emergency grants authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) to help students afford food, housing, childcare, and other necessities during the crisis are qualified disaster relief payments under section 139, the IRS said in a May 6 FAQ. Therefore, the payments aren’t includable in a student’s gross income. 

The IRS also said that because the aid is excluded from gross income, a student may not claim a deduction or credit for expenses paid with the grant, including the tuition and fees deduction, the American opportunity tax credit, and the lifetime learning credit.

‘A Win for Students’

The tax-free status of the emergency grants is welcome news to organizations representing colleges and universities, who have said that taxing the aid would harm the very students it’s supposed to help.

Congress never intended for the CARES Act emergency grant aid for students struggling to deal with the economic fallout of the pandemic to be treated as taxable income,” said Steven Bloom of the American Council on Education. “We are gratified that Treasury has affirmed that is the case, and that it will not be necessary for Congress to step in and clarify its intent via new legislation.”

The membership of the National Association of Independent Colleges and Universities “is enormously grateful to hear that the IRS will not be taxing the CARES Act grants to students,” according to Karin Johns, the organization's director of tax policy. “It was a top priority for us to push for this clarification, and an important win for our students.”  

Schools Were Heard

College and university representatives expressed their concerns in an April 16 letter to Treasury and the IRS, writing that “we do not believe that Congress meant for the value of this emergency aid to be diminished by taxation; rather, we believe legislators meant for this aid to function as a qualified disaster relief payment.”

Education groups also wrote the congressional taxwriting committees. They warned that the emergency grants might be adversely affected by section 117, which subjects scholarship or grant aid not spent on qualified tuition and related expenses to taxation.

They also wrote that because the Department of Education says the emergency aid must first go to students as cash grants, it was possible that even emergency grants used for tuition payments would be taxable.

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