A new IRS FAQ, released on Dec. 14, 2020, provides welcome guidance to colleges and universities that made Higher Education Emergency Relief Fund (HEERF) grants to students under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Specifically, the IRS does not expect colleges and universities to report such amounts on Forms 1098-T.
The CARES Act directs higher education institutions to use certain funds allocated by the Department of Education to directly support students with expenses and financial needs related to the disruption of campus operations due to the COVID-19 pandemic (including eligible expenses under a student’s cost of attendance, such as food, housing, course materials, technology, health care, and child care). Recipient higher education institutions must pay no less than 50% of the HEERF dollars received to students as emergency financial aid grants.
In May, the IRS posted FAQs clarifying that the emergency financial aid grants are not taxable to the students because they are qualified disaster relief payments. However, the original FAQs did not address higher education institutions’ Form 1098-T information reporting requirements.
New Q&A3 specifically advises colleges and universities to not report HEERF grants made to students on Forms 1098-T:
The emergency financial aid grants are qualified disaster relief payments, as described in A1 above, and are not included in students' gross income. As noted in A2 above, students may not claim deductions or credits for these amounts. The reporting of these grants to the IRS on Forms 1098-T could result in the issuance of underreporter notices (Letters CP2000) to students and furnishing such Forms 1098-T to students could cause confusion. Thus, the IRS will not require that these grants be reported pursuant to section 6050S of the Internal Revenue Code on Form 1098-T.
Note that the FAQ also provides relief from Form 1098-T reporting for certain COVID-19 emergency grants made to students under sections 3504 and 18008 of the CARES Act, related funding under the Higher Education Act and emergency relief funding allocated to historically black universities.