Circling back, it turned out that the HEERF Covid emergency payments had no restrictions on how they were used, and the IRS March 31, 2001 memo confirmed that they did not reduce the qualified and related expenses for the purpose of 529 withdrawals. These non-taxable payments were issued directly by educational institutions, so recipients were pre-qualified by having enrolled in school, but the payments were not contingent on them being used to pay for any specific expense, nor were they to be applied to offset any other public benefits or scholarships.
