Tax Insights

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Pandemic emergency financial aid grant not taxable

Did you receive a pandemic emergency financial aid grant due to the COVID-19 pandemic? Good news! Those grants aren’t included in your gross income.

The IRS recently released FAQs on how to report pandemic related grants. While the grants aren’t taxable income, students shouldn’t reduce the amounts they paid in qualified tuition and expenses by the emergency financial aid grant amount. If you used the grant to pay tuition and fees by December 31, 2020, you can claim the tuition and fees deduction, American Opportunity Credit or the Lifetime Learning Credit on your return.

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Because students don’t have to report the grant as income, educational institutions aren’t required to send a 1099-MISC form. These institutions are also not required to report the grants in Box 5 of Form 1098-T.

Just be aware that costs that qualify for the tuition and fees deduction, the American Opportunity Credit or the Lifetime Learning Credit are considered qualified tuition and related expenses so higher education institutions need to include qualified tuition and related expenses paid by emergency financial aid grants awarded to students in Box 1 of Form 1098-T.

Please contact your Henry + Horne tax professional with any questions. For more information and resources on COVID-19, see our coronavirus page.

Beth Hawley