In the past week, the IRS and the Department of Education have both issued updates on emergency grant aid for students created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The IRS recently announced that emergency grants provided to students under the CARES Act are not to be included in a student’s gross income and thus are not taxable.
This was an advocacy priority for NACUBO. We wrote to the IRS requesting that it adopt this approach and designate this aid as a “qualified disaster relief payment,” as taxing the grants would have diminished the benefit for students. The IRS guidance is entirely in line with NACUBO's recommendations.
NACUBO still recommends that institutions report the amounts for the emergency grants to students in Box 5 on IRS Form 1098-T, as the grants were administered and processed by the institution. The taxability of a grant does not impact 1098-T reporting requirements under IRS regulations. IRS regulations refer to “the amount of any scholarships or grants for the payment of the individual’s costs of attendance that the institution administered and processed during the calendar year. While the CARES Act emergency grants are not required to go towards cost of attendance, the grants may be used by students for such costs, as reported by NASFAA. Because institutions simply will not know for sure that grant aid will not be used for costs of attendance, a conservative compliance approach is to include the emergency grants in Box 5.
The IRS has also clarified because the emergency grant aid is not included in gross income, students cannot claim any deduction or credit—including the tuition and fees deduction, the American Opportunity Tax Credit, or the Lifetime Learning credit—for expenses paid with the grant.
The Department of Education recently published interim reporting guidelines for institutions on how to make their initial disclosures for CARES Act funds distributed to students in the form of emergency grants. Institutions may have to act quickly, as ED is requiring the disclosures to be made 30 days after the schools received the funds.
At least half of the funds an institution receives under the Higher Education Emergency Relief Fund (HEERF) must be provided to eligible students in the form of emergency grants. The Certification and Agreement that institutions signed to receive the student grant portion of the HEERF requires institutions to submit an initial report to ED 30 days after submitting the agreement, with the disclosures updated every 45 days thereafter.
However, at this time, ED does not have a mechanism in place to accept the initial report. Instead, the agency is requiring institutions to post information to their websites in a format and location that is easily accessible to the public. The following must be posted 30 days after the date when the institution received its allocation and updated every 45 days:
- An acknowledgement that the school signed and returned the Certification and Agreement and the assurance that the institution used—or intends to use—at least 50 percent of the Cares Act funds received for emergency grants to students.
- The total amount of funds a school received—or will receive—from ED.
- The total amount of emergency grants distributed to students as of the posting/submission date.
- The estimated number of students eligible to participate in the emergency grant program (the number of Title IV eligible students under Section 484 of the Higher Education Act).
- The total number of students who have received emergency grants under the CARES Act.
- The method(s) used to determine which students received the emergency grants and how much they received.
- Any instructions, directions, or guidance provided to students concerning the emergency grants.
Institutions must comply with the Family Educational Rights and Privacy Act (FERPA) to protect personally identifiable information from student education records when preparing the 30-day report.
For subsequent reports and reporting for other HEERF programs, ED will soon share its preferred reporting method. Institutions are encouraged to read ED’s announcement in its entirety.
Inspector General to Provide Oversight
ED’s Office of Inspector General (OIG) announced on April 5 that it would be carrying out oversight of the activities related to the more than $30B ED will provide to states, K-12 schools, and colleges and universities through the CARES Act. Specific to higher education, OIG announced in its oversight plan that it will be focusing on institutions’ use of the flexibilities provided to the campus-based programs under the CARES Act, as well as schools’ use of the HEERF—in particular, the obligation to use at least 50 percent of the allocation for emergency grants to students.