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IRS Outlines COVID-related Tax Issues

The Internal Revenue Service has detailed two areas of taxability stemming from the COVID-19 pandemic this week. These include the deductibility of personal protective equipment and taxation of emergency financial aid grants for students

 

First, oin Announcement 2021-7 PDF, the IRS said the purchase of PPE, including masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of the coronavirus are deductible medical expenses. These amounts can also be paid or reimbursed under health flexible spending arrangements, Archer medical savings accounts, health reimbursement arrangements or health savings accounts.

The agency also said a variety of  student financial aid grants stemming from the pandemic do not need to be included in their gross income. These include financial assistance  from a federal agency, state, Indian tribe, higher education institution or scholarship-granting organization, including a tribal organization.

Students should not reduce o qualified tuition and related expenses by the amount of such grants. If any portion of grants are used on or before December 31, students may be entitled to claim a tuition and fees deduction or the American Opportunity Credit or Lifetime Learning Credit on their 2020 tax returns. The deductions are not available for future tax years

Because students do not need to include the grants in gross income, higher education institutions do not need to provide Forms 1099-MISC and also do not need to report grants in Box 5 of Form 1098-T. However,  institutions must include qualified tuition and related expenses paid by emergency financial aid grants awarded to students in Box 1 of Form 1098-T.

Bob Scott
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards.  Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He  has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that.  A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
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