“Don’t tax student aid”: Higher ed organizations ask for clarification on taxability of student emergency aid

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, includes funding for universities and for direct emergency financial aid grants to students. The emergency grants are intended to cover student expenses including food, housing, course materials, technology, health care, and child-care.

Uncertainty remains regarding the taxability of the emergency student aid provided through the CARES Act. Under the Internal Revenue Code student scholarships and grant aid distributed for qualified tuition and related expenses, which includes tuition, required fees, and course materials, are excluded from a student’s taxable income. Conversely, non-qualified tuition and related expenses aid, including living expenses such as food and housing, are included in a student’s taxable income. The CARES Act is silent on the issue of taxability of emergency financial aid grants to students provided under the statute.

On April 16, the Association of Public and Land-grant Universities (APLU) and the Association of American Universities (AAU) joined the National Association of College and University Business Officers (NACUBO) in sending a letter requesting that the U.S. Department of the Treasury clarify the taxability of the CARES Act student aid.

The APLU, AAU and other higher education organizations signed on to a letter to Congress with the American Council on Education (ACE) reiterating the priority of such a clarification and requesting that this be addressed in Phase IV of the CARES Act.

A memo created by the APLU outlining the issue can be found here.

May 7 update: The IRS issued FAQs on the Higher Education Emergency Relief Fund and Emergency Financial Aid Grants under the CARES Act. The FAQ clarifies that aid, including emergency aid to college students, should be treated as a "qualified disaster relief payment" and is not treated as taxable income.