This AskRegs Knowledgebase Q&A was updated on April 2, 2021 to include National Association of College and University Business Officers (NACUBO) and IRS guidance related to Higher Education Emergency Relief Fund (HEERF I) student grants and Emergency Federal Supplemental Educational Opportunity Grant (Emergency FSEOG) funds under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), HEERF II student grants under the 2021 Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA, Section 314 of the Consolidated Appropriations Act, 2021), and HEERF III student grants under the American Rescue Plan of 2021 (ARP).
"Institutions were not required to report emergency grants on the 2020 Form 1098-T. In the IRS guidance, in Question #7, the IRS clarifies for colleges and universities that there is no special requirement to report student emergency grants on the 2021 Form 1098-T.
Institutions should report payments received for qualified tuition and related expenses—which may or may not be paid for with student emergency grants—as they normally would in Box 1 of the form. Emergency grants to students should not be reported in Box 5."
The following is from the IRS Higher Education Emergency Grants Frequently Asked Questions website:
"Q7. For tax year 2021, do higher education institutions have any requirements under Internal Revenue Code section 6050S to report information on Form 1098-T for emergency financial aid grants awarded to students under section 3504, 18004, or 18008 of the CARES Act, or otherwise in response to the COVID-19 pandemic (including under other provisions of the CARES Act, section 314 of the COVID Relief Act, or section 2003 of the ARP) ? (added March 30, 2021)
A7. Yes, for tax year 2021, in certain cases, higher education institutions have information reporting requirements under section 6050S for payments made with emergency financial aid grants. As described in A4 and A5 above, a student may claim a deduction or one of the education credits if the student and the expenses otherwise qualify for the deduction or credit. Any amounts that qualify for the deduction or credit are known as “qualified tuition and related expenses” (QTRE) and trigger the reporting requirements of section 6050S. Accordingly, higher education institutions must report total QTRE, including QTRE paid with emergency financial aid grant funds, in Box 1 of Form 1098-T, Tuition Statement. Higher education institutions do not need to separately identify the portion of QTRE paid with the emergency financial aid grants anywhere on Form 1098-T and they do not need to report the grants themselves in Box 5 of Form 1098-T. This is the case regardless of whether the higher education institution:
Note: Section 3504 funds are Emergency FSEOG funds. Section 18004 funds are HEERF I funds under the CARES Act. Section 18008 funds are Elementary and Secondary School Emergency Relief Fund funds under the CARES Act. Section 277 funds are any emergency financial aid grants made by a federal agency, state, Indian tribe, institution of higher education, or scholarship-granting organization (including a tribal organization) because of an event related to the COVID-19 pandemic; these include HEERF II funds under the CRRSAA. It is NASFAA's understanding Section 277 also covers HEERF III funds under the ARP.
Purpose of the 1098-T
The IRS collects the 1098-T, not to determine whether the student has taxable scholarships or grants, but to provide documentation allowing the IRS to ensure that students claiming the American Opportunity Credit and Lifetime Learning Credit have not paid all of their tuition and fees costs with grants and scholarships.
Early in 2020, NACUBO interpreted the 26 CFR 1.6050S-1 reporting requirements for the 1098-T as still being in effect and requiring all schools to report all “grant aid processed and administered by the institution.” The above IRS guidance supersedes that earlier guidance.
Initial IRS guidance related to HEERF I and Emergency FSEOG funds was published on the (now archived) IRS FAQs: Higher Education Emergency Relief Fund and Emergency Financial Aid Grants under the CARES Act website on December 14, 2020. That guidance indicated HEERF I grants to students and Emergency FSEOG amounts are not reported anywhere on IRS Form 1098-T for the 2020 tax year.
Questions About This Tax Guidance
Any questions on this topic go directly to the IRS, to the school's business office, and/or to NACUBO. Tax rules and regulations are not within NASFAA's area of expertise, so NASFAA cannot answer any further questions on this topic.
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