The IRS and the Small Business Association (SBA) have issued additional guidance on emergency financial aid grants and eligibility for Paycheck Protection Program (PPP) loans for colleges, universities, and their students. Here are the key points to know.
Emergency Aid Isn’t Income
Students who receive emergency financial aid grants under the Coronavirus Aid, Relief and Economic Security Act (CARES) Act don’t need to include the amount of the grant in their gross income, according to the IRS. The grants are considered qualified disaster relief payments under Internal Revenue Code (IRC) Section 139, which excludes such payments from gross income.
The CARES Act allows colleges and universities to use certain funds allocated by the US Department of Education to support students who have financial needs and expenses related to the COVID-19 pandemic. Expenses may include costs related to the disruption of school, such as unexpected expenses for food, housing, course materials, technology, health care, and child care.
Because the emergency aid isn’t included in a student’s gross income, students can’t claim a tuition and fees deduction or credit—including the American Opportunity Credit or the Lifetime Learning Credit—for any qualified education expenses paid for with grant funds.
So far, neither the IRS nor Department of Education has provided guidance on possible reporting or exclusion of these emergency financial aid grants on Form 1098-T. However, it’s likely grants shouldn’t be reported in Box 5 on Form 1098-T, Tuition Statements, because the grants are qualified disaster relief payments under IRC Section 139.
Student Workers and PPP Eligibility
Work-study students shouldn’t be counted when a college or university is determining the number of employees for PPP loans, according to the SBA regulations.
Under the regulations issued May 5, 2020, student workers in general don’t count toward the number of employees under the following circumstances:
- The applicant is an institution of higher education, as defined in the US Department of Education’s Federal Work-Study regulations, and
- The student worker’s services are part of a Federal Work-Study Program—also defined in the Federal Work-Study regulations—or a substantially similar state or local work-study program.
Colleges and universities should exclude work-study students when determining employee count for PPP loan eligibility and should also exclude work-study payroll costs from the calculation of payroll costs used to figure the PPP loan amount.
Some schools that had initially thought they were over the 500-employee threshold may now be eligible for a PPP loan after excluding their work-study employees.
We’re Here to Help
For further guidance on how these regulations relate to your unique situation, please contact your Moss Adams professional.
For regulatory updates, strategies to help cope with subsequent risk, and possible steps to bolster your workforce and organization, please see the following resources: