Students who receive emergency financial aid courtesy of the Coronavirus Aid, Relief and Economic Security (CARES) Act will not have to pay income tax on that aid, according to Mark Kantrowitz, publisher and vice president of research, at Savingforcollege.com.
That aid will be considered necessary relief as the result of a qualified disaster, which is excluded from a taxpayer’s gross income under Section 139 of the U.S. tax code, says Kantrowitz. He explains that since President Donald Trump declared a national emergency on March 13, invoking the Robert T. Stafford Disaster Relief and Emergency Assistance Act, the current health emergency is considered a qualified disaster.
It should be noted that the IRS has not issued any press release on the tax treatment of emergency financial aid provided to colleges and universities in the CARES Act, but Kantrowitz, an expert in all things student financial aid-related, says his sources in the federal government confirm this interpretation. Other benefits included in the CARES Act, such as the $1,200 payment to adults with an adjusted gross income up to $75,000 ($150,000 for couples) are also tax-free. (Americans 17 and older who are dependents on someone else’s tax return don’t qualify for these payments.)
The $2.2 trillion CARES Act provides $14 billion in assistance to colleges and universities, at least half of which must be used for emergency financial aid for undergraduate and graduate students in need “to help cover expenses related to the disruption of campus operations due to coronavirus,” according to a letter from Betsy DeVos, secretary of education, to college and university presidents. Those students could receive up to the maximum allowed under the federal Pell Grant program, which is $6,195 for the current academic year.