WASHINGTON — The Internal Revenue Service issued frequently asked questions today on how students and higher education institutions should report pandemic-related emergency financial aid grants.
Emergency financial aid grants made by a federal agency, state, Indian tribe, higher education institution or scholarship-granting organization (including a tribal organization) to a student because of an event related to the COVID-19 pandemic are not included in the student’s gross income.
Also, students should not reduce an amount of qualified tuition and related expenses by the amount of an emergency financial aid grant. If students used any portion of the grants to pay for qualified tuition and related expenses on or before December 31, 2020, they may be eligible to claim a tuition and fees deduction or the American Opportunity Credit or Lifetime Learning Credit on their 2020 tax return. See Higher Education Emergency Grants Frequently Asked Questions.
The tuition and fees deduction is not available for tax years beginning after December 31, 2020. For additional information on these credits and the tuition and fees deduction, see Publication 970, Tax Benefits for Education.