Receiving Grant Funds from the US

Who is this article for?

For individuals or organizations who receive grant funds, including scholarships and fellowships.

This information covers grants from foundations, organizations, and individuals in the U.S. Majority of the information does not apply to government-issued grants, which may have exceptions and rules. While most countries have similar rules and regulations for grant funding, it is best to check your country's tax laws and government regulations prior to applying for or receiving any funding.

Topics Covered in This Article:

Grants for Individuals
Grants for Organizations
Best Practices for Receiving Grants (Individuals and Nonprofits)

Grants for Individuals

Foundations, funders, and sponsors prefer to give grants to nonprofits or those with 501(c)(3) status, which is why fewer individual or personal grants are given. A nonprofit or organization with 501(c)(3) status looks more reputable due to its structure and need to adhere to certain guidelines and laws.

According to the IRS, grants that are awarded to individuals for travel, study, or other similar purposes are considered taxable expenditures.
Individual grants only become non-taxable if:

Grant is awarded on an objective and nondiscriminatory basis through a procedure pre-approved by the IRS
Grant is a scholarship and fellowship to be used for the study
Grant is a prize or award that is excludable from gross income if the recipient is selected from the general public
Grant's purpose is to achieve a specific objective, produce a report or similar product, and improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill, or talent of the grantee.

Note: Direct donations are not tax-deductible for the donor (in this case, the funder), and if you received a grant, then it will count as personal income, which is taxable. See our article on how grant funds are taxed for more information on grant taxation.

Organizations that provide individual grants in the U.S. can do so through advanced approval from the IRS, filing a Form 8940. The requirements for individual grant procedures include the following:

The procedure awards grants on an objective and non-discriminatory basis
The procedure is reasonably calculated to result in performance by grantees of the activities that the grants are intended to finance
The foundation will supervise grants to determine whether grantees have fulfilled the grant terms

Grants for Organizations

Foundations, corporations, and government agencies also offer grants to organizations, whether they’re nonprofits or for-profit businesses. For-profit businesses are typically not eligible to receive grants from the federal government. Funds from a government grant are best used for operational and administrative expenses. Grants for small businesses are typically aimed at job creation, funding projects that don’t get traditional support, or increasing economic benefits for communities.

In addition to the financial benefits of a grant, a grant may also help increase your nonprofit or company’s visibility. You’re more likely to get grants from different funders once you secure your first grant and make good use of the funding received.

There are 3 different types of grants that are typically awarded:

Unconditional Grant - These are usually provided upfront and can be used at your discretion, without restrictions.
Grant with Contingencies - Funding is usually given in installments over time, and you are required to fulfill certain conditions.
Reimbursable Grant - In this case, you pay for the grant’s intended project initially, then the grantor pays you back for your expenditures.

No matter what type of grant you receive, it’s advised that you keep track of the grant funding and the expenditures associated with it. This is especially important if one of the conditions explicitly specifies how the funds are to be used.

Similar to grants to individuals, grants to organizations are still taxable expenditures in the US according to the IRS, unless:

The recipient’s organization is a public charity - in the US, this means they have 501(c)(3) status.
The foundation (grantor) exercises expenditure responsibility with respect to the grant.

Best Practices for Receiving Grants (Individuals and Nonprofits)

If you are awarded a grant by a foundation or nonprofit, it’s important to ensure your goals are aligned and you can meet the program obligations, and the grant’s funds are properly allocated. Although awarding grants is considered a business transaction, it can start a fruitful relationship with the organization and be mutually beneficial to both parties.

Finish any initial paperwork required.
1. Sign all documents, which typically include the letter accepting the grant, reporting requirements, and other grant fund-related details.
2. Create electronic and physical copies of these documents.

Set up your financial system
1. An individual grant award should be accounted for as an “independent cost center.” It’s recommended that you open a separate business account solely for the grant funds.
2. It’s in your best interest and the funders to NOT mix your grant funds with your personal or additional business funds. You risk losing track of expenditures related to your grant and make it difficult to show that all the funds were spent for the intended purpose.
3. All income and expenditures from the grant fund must be accounted for at all times.
4. Seek the services of an accountant or bookkeeper, especially if you’re not knowledgeable about fund management and taxes.

Review your grant application.
1. It may have been a while since you submitted your application. It’s best to read through it and get an understanding of what needs to be done.
2. Check and take note of what the organization needs from you and when they would need them.
3. Start assigning major tasks and creating a project timeline with key deadline reminders.

Review the grant rules and regulations.
1. Have a system for recording data and when reports are due.
2. Include systems for checks and balances, documentation, and fiscal controls.
3. Provide reports even if there’s no requirement from the funder. Give one in the middle of the grant period and then another one at the end at a minimum.

Keep communication lines open between you and the funding organization.
1. Be proactive, especially when you think an issue will arise in regard to the grant funds.
2. Don’t forget to send a thank you note to the organization and funder!