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Emergency Grants to Students Shouldn’t Be Taxed, Groups Say

Posted on Apr. 23, 2020

The higher education community is imploring congressional taxwriters to prevent the taxation of grants intended to help college students afford food and other non-tuition expenses during the coronavirus pandemic.

Organizations representing colleges and universities are concerned about the potential taxability of emergency student aid grants authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136).

Taxing the grants would harm “the very students they are intended to help,” the American Council on Education and more than 40 other groups told the House Ways and Means and Senate Finance committees in an April 21 letter

The grants are intended to help students meet expenses related to the disruption of campus operations because of the coronavirus, including costs of food, housing, course materials, technology, healthcare, and child care, the letter noted.

However, under section 117 of the code, scholarship or grant aid not spent on qualified tuition and related expenses is potentially subject to taxation, the letter continued.

“As a result, we fear that students who spend this emergency grant aid to help cover permitted essential, non-qualified ‘tuition and related expenses’ will later be taxed on that aid,” the signatories said.

And because the Department of Education says the emergency aid must first go to students as cash grants, it’s possible that even emergency grants used for tuition payments could also be taxable, the groups said.

“Taxing this emergency aid would undermine the benefit of the grants to students and negate the intent of Congress in authorizing the aid to help the most vulnerable students,” the organizations wrote. “We believe that this is an unintended consequence.”

Higher education groups also expressed their concerns in an April 16 letter to Treasury and the IRS.

However, it appears Treasury believes it lacks the statutory authority to exclude the emergency aid grants from taxability, according to the April 21 letter.

That means it’s up to Congress to act, the groups said. They asked lawmakers to address the issue in any “phase 4” economic stimulus legislation “to make sure emergency financial aid grants to students for non-qualified tuition and related expenses as authorized in the CARES Act will not be taxed.”

In recent weeks the American Council on Education and other education groups have asked Congress for other tax measures to help schools and students get through the economic downturn caused by the pandemic.

In an April 9 letter to the taxwriting committees, the higher education representatives asked that public colleges and universities and other public institutions be eligible for sick and family paid leave credits and the employee retention tax credit.

They also requested temporary enhancements to higher education tax credits and a suspension of the 1.4 percent excise tax on the endowments of some private colleges and universities.

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