Are scholarships taxable?
Last updated October 2026 · By The Scholarly team
Usually not, as long as you're a degree candidate and the money goes to tuition, required fees, and books, supplies, and equipment your courses require. Under IRS Publication 970, the part of a scholarship used for room and board, travel, or optional equipment is taxable income, and so is any money paid for teaching, research, or other work you're required to do. If you're not pursuing a degree, the scholarship is taxable.
The IRS test, in plain English
IRS Publication 970 says a scholarship or fellowship grant is tax-free only if all of these are true:
- You're a candidate for a degree at an eligible educational institution.
- The money is used for qualified education expenses.
- The award isn't earmarked for other purposes, such as room and board, and doesn't require it be used for something other than qualified expenses.
- It isn't payment for services, such as teaching or research you must do to receive it.
What counts as a qualified education expense
| Tax-free if paid with a scholarship | Taxable if paid with a scholarship |
|---|---|
| Tuition and fees required to enroll or attend | Room and board (housing and meals) |
| Books, supplies, and equipment required of all students in your course | Travel and transportation |
| Research, clerical help, or equipment not required for enrollment or attendance | |
| Payments for teaching, research, or other required services (with narrow exceptions) |
The line that trips people up is housing. A full-ride scholarship that pays $30,000 in tuition and $14,000 for a dorm and meal plan is tax-free on the $30,000 and taxable on the $14,000. Many students who receive large awards don't realize this until they get a tax notice.
Payments for services are taxable
If you have to work for the money, it's generally treated as wages, even when it's called a scholarship. Teaching assistantships and research assistantships are the usual examples. Publication 970 lists a few exceptions, including the National Health Service Corps Scholarship Program and the Armed Forces Health Professions Scholarship and Financial Assistance Program, and certain work-learning-service programs at work colleges.
A worked example
Maya receives $20,000 in scholarships and grants for the year. Her college charges $12,000 in tuition and required fees, her required textbooks cost $800, and the rest of the money pays for her dorm and meal plan.
- Qualified expenses: $12,000 + $800 = $12,800, tax-free.
- Remaining $7,200, used for room and board: taxable income.
Whether Maya actually owes tax on that $7,200 depends on her total income, filing status, and other factors. Many students with little other income owe little or nothing, but the amount still has to be reported correctly when a return is required.
How to report a taxable scholarship
Per Publication 970 for 2025 returns: if the taxable amount was included in box 1 of a Form W-2, it's already in your wages on Form 1040, line 1a. If it wasn't on a W-2, report the taxable part on Schedule 1 (Form 1040), line 8r. Nonresident aliens filing Form 1040-NR also use Schedule 1, line 8r, generally for the amount in box 2 of Form 1042-S. Publication 970 includes a worksheet (Worksheet 1-1) for working out the taxable portion.
Keep records. Save your tuition bill, receipts for required books and supplies, and the award letters that say what each scholarship can be used for. Your Form 1098-T from the college helps, but it doesn't settle the question on its own.
The education credit twist
Here's something many families miss. Publication 970 explains that in some situations you can increase your American opportunity credit by choosing to include part of a scholarship in income, which frees up tuition to count toward the credit. The scholarship must be one that could otherwise qualify as tax-free, and including it doesn't always help: the tax on the extra income or lost credits can outweigh the gain. If your family claims education credits and the student has significant scholarships, run the numbers both ways or ask a tax preparer.
Scholarships and financial aid are a separate question
Taxes and financial aid follow different rules. A scholarship can be tax-free and still reduce your college's need-based aid. That's covered in how outside scholarships affect financial aid.
This guide explains general federal rules from IRS Publication 970. It isn't tax advice, and state rules may differ. For your situation, consult the publication, a tax professional, or a free IRS VITA site.
Common questions
Do I have to pay taxes on scholarships?
Not on the portion used for tuition, required fees, and required books, supplies, and equipment, if you're a degree candidate. The portion used for room, board, or travel is taxable income, as is any payment for required work.
Is a scholarship used for room and board taxable?
Yes. IRS Publication 970 excludes room and board from qualified education expenses, so scholarship money used for housing and meals is taxable.
Are Pell Grants taxable?
Pell Grants follow the same rules as scholarships. They're tax-free when used for qualified education expenses and taxable when used for room and board or other non-qualified costs.
Where do I report a taxable scholarship?
For 2025 returns, report taxable scholarship amounts not shown on a W-2 on Schedule 1 (Form 1040), line 8r. Amounts in W-2 box 1 are included on Form 1040, line 1a.
Is a scholarship taxable if I'm not a degree candidate?
Yes. Under Publication 970, scholarships are tax-free only for students who are candidates for a degree at an eligible educational institution.
Sources
- Publication 970 (2025), Tax Benefits for Education, IRS Chapter 1: scholarships, qualified expenses, reporting; Chapter 2: American opportunity credit coordination.
- Topic No. 421, Scholarships, Fellowship Grants, and Other Grants, IRS
- Free tax return preparation for qualifying taxpayers (VITA), IRS