NASFAA Urges Treasury, IRS to Ensure CARES Act Emergency Aid to Students Is Non-Taxable

By Owen Daugherty, NASFAA Staff Reporter

Several higher education groups — including NASFAA — have signed on to a letter to Treasury Secretary Steve Mnuchin and Internal Revenue Service (IRS) Commissioner Charles Rettig, urging them to ensure the emergency grant aid allocated to college students during the global coronavirus pandemic is not treated as taxable income.

With more than $6 billion in emergency funding allocated to go directly to college and university students as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, there is concern among higher education groups that the money would not have its desired impact if it is treated as taxable income.

“We believe that the Congressional intent for these funds was to provide immediate non-taxable disaster relief to a particularly vulnerable and struggling portion of the population during this unprecedented time of crisis,” the letter states.

The letter points to the fact that traditional educational grant aid is treated as either non-taxable when used for qualified tuition and related expenses (QTRE), or taxable when used for other educational expenses that do not qualify as QTRE, but does acknowledge that the emergency aid going to students under the CARES Act is not traditional grant aid.

While Congress specifies in the CARES Act that the emergency aid can be used on things such as “technology, health care, and child care,” those expenses are not considered QRTE.

As such, NASFAA and the other higher education groups believe it was not Congress’ intent “for the value of this emergency aid to be diminished by taxation.”

“Rather, we believe legislators meant for this aid to function as a qualified disaster relief payment,” the letter reads.

Support for this interpretation comes from Section 139 of the Internal Revenue Code, which deals with qualified disasters and qualified disaster relief payments.

The letter notes that since President Donald Trump approved disaster declarations from all 50 states, the emergency aid grants allocated to students meets the qualified disaster requirements of Section 139.

“Section 139 also makes clear that qualified disaster relief payments can include reasonable and necessary personal, family, or living expenses incurred as a result of a qualified disaster, much like the potential uses of emergency grant aid to students outlined by Congress,” the letter contends.

Much like the $1,200 checks distributed to many Americans as part of the CARES Act, emergency grant aid given directly to students will not impact the student’s eligibility for financial aid. ED's April 3 Electronic Announcement states that any aid received by victims of an emergency by either a federal or state entity for purposes of providing financial relief will not be counted as income for the calculation of Expected Family Contribution (EFC) or estimated financial assistance (EFA). This would apply to any funds a student will receive from a stimulus check and/or funds a student will receive from the CARES Act Economic Stabilization Fund — the fund to provide emergency grant aid dollars to institutions and students. The same exemption from income is not provided for institutional emergency funds.

However, it remains unclear as to whether the emergency aid grants will be taxable as part of a student’s income.

“Given the unpredictable and unanticipated onset of the coronavirus, and Congress’ swift response on behalf of impacted populations, the emergency grant aid provided to students in the CARES Act should not be treated as traditional educational grant aid,” the letter states. “Rather, it should be treated as what it is: a nontaxable qualified disaster relief payment made by Congress to students in response to an ongoing nationwide disaster.”


Publication Date: 4/17/2020

Angela B | 4/17/2020 8:16:53 AM

Will we have to provide a 1098-t form for any distribution of these funds?

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