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IRS Provides Guidance on Reporting Student Assistance Grants on Form 1098-T

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On March 30, 2021, the IRS updated its Higher Education Emergency Grants Frequently Asked Questions (FAQs) page with information on reporting student grants provided with HEERF I or HEERF II funding on Form 1098-T, Tuition Statement. The FAQs do not address student grants provided under HEERF III, which was created under the American Rescue Plan Act of 2021 signed into law on March 11, 2021.

Funds provided through the Higher Education Emergency Relief Fund (HEERF) can be used for qualified tuition and related expenses (QTRE) as a result of the option to apply grant funds directly to a student’s account with expressed permission. FAQs 3 and 4 make it clear that a student who otherwise qualifies for the American Opportunity Credit or the Lifetime Learning Credit as a result of paying for QTRE may claim such credit even though the QTRE were paid for with an emergency financial aid grant.

Additionally, QTRE paid for on or before December 31, 2020, for which a credit is not claimed, remain deductible, notwithstanding the use of an emergency financial aid grant to pay for the QTRE.

FAQ 5 clarifies that institutions have no obligation to include emergency financial aid grants on Form 1099-MISC.

Finally, FAQ 6 provides that QTRE remain reportable in Form 1098-T, Box 1 regardless of whether the higher education institution:

  1. Paid the emergency financial aid grants to the students, who then used grant money to pay for QTRE; or
  2. Applied grant money directly to QTRE on a student’s account.

In addition, the institution is not required to separately identify the portion of QTRE paid with an emergency financial aid grant anywhere on Form 1098-T, nor are emergency financial aid grants reported in Form 1098-T, Box 5.

Please contact us with any questions about how this may affect your institution.

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