Are Scholarships Really Taxable? Avoid this Mistake + FAQs
- March 22, 2025
- 7 min read
Yes – scholarships can be taxable in the United States if certain conditions aren’t met, but many scholarships are tax-free when used for the right expenses.
Some or all of your scholarship might be excluded from income if you meet specific requirements, but misuse of funds can lead to a tax bill.
Understanding the rules is crucial so you don’t get caught off guard by the IRS. This detailed guide breaks down when scholarships are taxable, when they’re tax-exempt, and how federal and state laws treat your education funding.
What Determines If a Scholarship Is Taxable? 🎓
Not all scholarships are created equal in the eyes of the IRS. Whether scholarship funds are taxable depends on how you use the money and your student status.
The IRS has two main criteria that decide if scholarship money stays tax-free or becomes taxable income:
Enrollment Status: You must be a degree-seeking student (a candidate for a degree) at an eligible educational institution. This usually means you’re pursuing an associate’s, bachelor’s, or higher degree at a college, university, or other accredited school with a regular faculty and student body.
Qualified Education Expenses: The scholarship funds must be used for qualified education expenses. These are the mandatory costs of your education: tuition and required fees for enrollment, plus books, supplies, and equipment required for your courses.
In contrast, non-qualified expenses include costs like room and board (housing and meal plans), transportation or travel, and any optional fees or equipment. Scholarship money used for those purposes is not exempt – that portion becomes taxable income.
If you meet both criteria, the scholarship amount used on those qualified expenses is considered a qualified scholarship under federal law (Internal Revenue Code §117).
Qualified scholarships are excluded from gross income, meaning you don’t pay federal income tax on that portion. 🤓 Essentially, the money truly went toward your education, so the IRS gives you a break.
On the other hand, any scholarship (or part of it) that fails either test becomes taxable scholarship income. In simple terms, if you spend scholarship money on non-qualified costs or you’re not in a degree program, that money counts as taxable income on your tax return.
You would have to report that portion and potentially pay tax on it.
(Example: If you receive a $5,000 scholarship and use $4,000 for tuition and required course materials, but $1,000 for dormitory housing, $4,000 is tax-free and $1,000 is taxable.)*
When Do Scholarships Become Taxable Income? 💰
Even if you’re a degree student, there are specific situations where scholarship funds become taxable. Here are the common scenarios in which scholarships and grants are treated as taxable income:
Used for Living Expenses: If scholarship money covers room and board, meals, travel, or other living expenses, that portion must be included in your taxable income. For instance, scholarship funds applied to dormitory fees, apartment rent, meal plans, or commuting costs are taxable because these are not qualified education expenses. You don’t get taxed on the part used for tuition or books, but any excess used for living costs is income in the IRS’s view.
Payment for Services (Work-Required Scholarships): A scholarship or fellowship that requires you to perform services (such as teaching, research, or a work-study obligation) is generally taxable as wages. Essentially, you’re being paid to work, so that compensation doesn’t qualify for the tax-free scholarship exclusion.
Example: A graduate teaching assistantship that provides a stipend in exchange for teaching classes is taxable – the stipend is basically a salary for teaching. In the eyes of the tax law, it’s a quid pro quo (“this for that”) rather than a gift. You would typically receive a W-2 form for this type of income, and it is subject to income tax (and possibly payroll taxes like Social Security and Medicare if you’re treated as an employee).
Special exceptions: Certain public service scholarships are exempt by law even though they involve service. Notably, National Health Service Corps Scholarships and Armed Forces Health Professions Scholarships (for medical and healthcare students who commit to serve) remain tax-free despite their service requirements. These programs were specifically exempted by Congress, so recipients don’t pay tax on those funds. Apart from such cases, assume that any scholarship tied to required work is taxable.
Non-Degree Candidates: If you’re not a candidate for a degree, any scholarship or fellowship you receive is fully taxable. The tax break for scholarships only applies to degree-seeking students. For example, if you get a research grant or stipend for a summer program and you’re not enrolled in a degree program, that money is considered regular income. Similarly, any awards given for general educational pursuits (like a one-time training course or a stipend to study something outside a degree program) are taxable.
Prizes and Awards Labeled as Scholarships: Sometimes prizes (from contests, competitions, or nonprofits) are called “scholarships” but aren’t restricted to educational use. If you can use the money however you want (not strictly for tuition or school costs), it’s essentially prize income. Unless you spend it on qualified education expenses while you’re a student, it won’t qualify for the tax-free treatment. For all practical purposes, it’s taxable income (often accompanied by a Form 1099 from the payer).
How to Report Taxable Scholarship Income: If part of your scholarship is taxable, you must report it on your income tax return. Taxable scholarship amounts (if not already on a W-2) are added to the “Wages, salaries, tips” line of Form 1040 (with “SCH” noted next to the amount).
This ensures the IRS knows it’s scholarship income and not a job wage from an employer. You’ll pay income tax on that amount according to your tax bracket.
Keep in mind, taxable scholarship income is generally treated as unearned income for tax purposes, which can affect dependents (it might trigger the “kiddie tax” for a student under 24, causing the income to be taxed at the parent’s rate beyond a certain threshold).
Key Terms and Definitions in Scholarship Taxation
To navigate scholarship tax rules, it’s important to understand some key terms and concepts:
Scholarship: Money awarded to a student to support education, which does not have to be repaid. Scholarships can be merit-based (for academic or other achievements) or need-based (based on financial need). They may come from schools, private organizations, charities, employers, or government programs. For tax purposes, a scholarship is generally any amount paid to or for the benefit of a student at an educational institution for study.
Fellowship: A fellowship is similar to a scholarship but often refers to funding for graduate studies or research. Fellowships might provide a living stipend and tuition support for a graduate student or researcher. The tax treatment of a fellowship is the same as a scholarship: if the funds are used for qualified tuition and course expenses for a degree program, they’re tax-free; if used for living expenses (or if the fellowship is essentially a paid research position), those amounts are taxable.
Grant: “Grant” is a broad term for an award of money to support education or research. Many need-based student awards are called grants. For example, a Pell Grant is a federal grant from the U.S. Department of Education given to undergraduate students with financial need (determined through the FAFSA application). Grants follow the same tax rules as scholarships: a Pell Grant or any other grant is tax-free when used for tuition and required course costs, but taxable if used for other expenses.
Tuition Waiver / Tuition Reduction: Instead of giving you money, an institution might waive part of your tuition (reduce the amount you have to pay). For instance, universities often offer tuition reductions to their employees, to graduate teaching assistants, or as part of athletic scholarships. These tuition waivers are generally treated like qualified scholarships (tax-free) if they are for education at the institution and meet certain conditions. U.S. tax law (IRC §117(d)) specifically allows qualified tuition reductions for employees of educational institutions (and their dependents) to be excluded from income, especially for undergraduate studies. So if your college lets you attend tuition-free because your parent works there or because you’re a grad assistant, you typically won’t owe taxes on the waived tuition amount.
Stipend: A stipend is a fixed sum of money provided to a student (often a graduate student) to help cover living expenses while studying or researching. Stipends frequently come as part of a fellowship or assistantship package. Because stipends usually cover non-qualified expenses (like housing, food, and personal costs), they are usually taxable income to the student. If the stipend is given in return for teaching or research work, it’s taxed as wages (and you may get a W-2). If it’s simply a living allowance with no work requirement, it’s taxable scholarship/fellowship income (you might not get a W-2, but it’s still reportable). One key point: although taxable, some fellowship stipends are now treated as “compensation” for certain purposes like IRA contributions due to recent tax law changes (so being taxable can have some side benefits in that context).
American Opportunity Tax Credit (AOTC): This is a federal tax credit designed to offset higher education costs. It can provide up to $2,500 per year for eligible students (generally undergraduates in their first four years of college). However, you cannot double-dip tax benefits: you can’t use the same education expense for both a tax-free scholarship and the AOTC. In other words, if tuition was covered by a tax-free scholarship, you can’t claim that amount for the credit. Some families intentionally include part of a scholarship as taxable income in order to leave some tuition expenses “uncovered” and eligible for the AOTC – essentially trading a small tax on the scholarship for a larger tax credit. (This is a complex strategy, so consult a tax advisor, but it’s good to know it exists.)
FAFSA (Free Application for Federal Student Aid): This is the form used to determine a student’s eligibility for financial aid like federal grants, loans, and work-study. While FAFSA itself isn’t a tax form, it uses information from your (and your parents’) tax returns. Notably, taxable scholarship income will count as part of your income on the FAFSA, which could reduce need-based aid in the following year. Tax-free scholarship amounts are not counted as taxable income on the FAFSA (though the application does ask you to report how much tax-free grant and scholarship aid you received, it treats that separately from income). So, large taxable scholarships can affect financial aid calculations, whereas tax-free scholarships mainly just reduce your school costs directly.
IRS (Internal Revenue Service): The U.S. government agency that collects taxes and enforces tax laws. The IRS provides guidance (in publications and the tax code) on how scholarships should be reported and taxed. Key IRS references on this topic include IRS Publication 970 (which covers tax benefits for education) and tax code provisions like Internal Revenue Code §117 (scholarship exclusion) and §25A (education credits like the AOTC). Being familiar with IRS rules ensures you handle scholarship funds correctly at tax time.
State-by-State Tax Treatment of Scholarships
Even after figuring out the federal tax situation, you might wonder how your state taxes scholarship money. State tax laws generally follow the federal rules, but it depends on whether your state has an income tax. Here’s a comprehensive look at all 50 states:
| State | State Income Tax on Scholarships? |
|---|---|
| Alabama | Yes – Alabama follows federal rules. Qualified scholarships (tuition, fees, etc.) are not taxed, while any taxable portion (room & board or stipends for work) is included in Alabama income. |
| Alaska | No – Alaska has no state income tax, so it does not tax scholarship or fellowship income at the state level. |
| Arizona | Yes – Arizona conforms to federal tax law. Any scholarship amount taxable federally is also taxable in Arizona. No special state exceptions; qualified educational scholarships are tax-free. |
| Arkansas | Yes – Arkansas taxes scholarships the same as the IRS. If you include an amount in income on your federal return, you’ll include it on your Arkansas state return as well. |
| California | Yes – California generally mirrors federal treatment of scholarships. Tax-free scholarships remain untaxed by CA, and any taxable scholarship income (such as funds for living expenses or wages from a teaching fellowship) is subject to California income tax. |
| Colorado | Yes – Colorado uses federal taxable income as the starting point, so scholarship funds that are taxable federally are also taxable in Colorado. No state-specific exclusions beyond the federal rules. |
| Connecticut | Yes – Connecticut taxes scholarship income in line with federal rules. Qualified scholarships are excluded from CT income; non-qualified portions are taxable in Connecticut. |
| Delaware | Yes – Delaware follows federal definitions of income. Any scholarship amount that is taxable under federal law is taxable under Delaware law; qualified scholarships are not taxed. |
| Florida | No – Florida has no state personal income tax, so scholarship money is not taxed at the state level in Florida. |
| Georgia | Yes – Georgia includes taxable scholarship amounts in state income, following federal guidelines. There’s no special exemption beyond what federal law provides. |
| Hawaii | Yes – Hawaii’s tax code aligns with federal treatment of scholarships. If it’s taxable on your federal return, it’s taxable in Hawaii; if it’s tax-free federally, Hawaii won’t tax it either. |
| Idaho | Yes – Idaho follows federal taxable income rules. Tax-free scholarships are excluded, but any taxable scholarship or grant income must be reported on the Idaho return as well. |
| Illinois | Yes – Illinois uses federal adjusted gross income to calculate state income. This means any scholarship dollars counted in federal AGI (taxable portion) will be taxed by Illinois. Illinois does not add any extra tax for scholarships beyond federal treatment. |
| Indiana | Yes – Indiana aligns with federal rules on scholarship taxation. You won’t pay Indiana tax on a scholarship used for tuition, but you will on any part that was taxable federally. |
| Iowa | Yes – Iowa taxes scholarship income in the same manner as federal. If a scholarship (or part of it) was included in your federal taxable income, it will be taxed by Iowa. |
| Kansas | Yes – Kansas conforms to federal definitions of income. Taxable scholarship amounts (e.g., for living expenses or stipends) are subject to Kansas income tax; qualified scholarship portions are not. |
| Kentucky | Yes – Kentucky includes taxable scholarship amounts in state taxable income, following the federal guidelines. No state-specific differences for scholarship funds. |
| Louisiana | Yes – Louisiana follows federal taxability for scholarships. Any portion of a scholarship that is taxable on the federal level will be taxable on the Louisiana state return as well. |
| Maine | Yes – Maine generally adheres to federal treatment. Qualified scholarship amounts are not taxed, while any taxable scholarship income is included in Maine taxable income. |
| Maryland | Yes – Maryland uses federal adjusted gross income as a baseline. Scholarship funds excluded federally remain tax-free in MD, and any federally taxable portion is taxed by Maryland. |
| Massachusetts | Yes – Massachusetts tax law specifically excludes qualified scholarships from state income (just like federal). Any taxable scholarship (like payment for services performed in MA or non-qualified expenses) is subject to Massachusetts income tax. (MA follows federal rules; for non-residents, only the portion tied to Massachusetts – e.g., teaching stipend in MA – would be taxed by MA.) |
| Michigan | Yes – Michigan conforms to federal income definitions. If your scholarship was tax-free under federal law, it’s not taxed in Michigan; if it was taxable (included in federal AGI), Michigan taxes it too. |
| Minnesota | Yes – Minnesota follows federal taxable income rules for scholarships and grants. Taxable scholarship income is included in Minnesota income; qualified portions remain exempt. |
| Mississippi | Yes – Mississippi aligns with federal guidelines. Scholarship money that is taxable at the federal level is also taxable in Mississippi; qualified (tax-exempt) scholarship amounts are not subject to Mississippi tax. |
| Missouri | Yes – Missouri uses federal adjusted gross income as the base for taxation. Any scholarships taxed federally will be taxed in Missouri, and any tax-free scholarship portion stays tax-free in Missouri. |
| Montana | Yes – Montana adheres to federal treatment of scholarships. If you have to report scholarship money as income federally, you also report it to Montana. No additional state-level scholarship taxation beyond federal rules. |
| Nebraska | Yes – Nebraska follows federal law on income inclusion. Taxable scholarships are included in Nebraska taxable income, while qualified scholarships are exempt. |
| Nevada | No – Nevada has no state income tax, so it does not tax scholarship funds. |
| New Hampshire | No – New Hampshire does not tax wages or scholarships (NH only taxes interest and dividends, not earned income). |
| New Jersey | Yes – New Jersey generally follows federal definitions for income. Any scholarship or grant amount that was taxable federally is also taxable in NJ. (NJ doesn’t have special exclusions beyond the federal ones for scholarships.) |
| New Mexico | Yes – New Mexico taxes scholarship income in line with federal rules. If a portion of your scholarship is taxable at the federal level, it will be included in NM taxable income; qualified scholarship amounts are not taxed. |
| New York | Yes – New York conforms to federal treatment of scholarships. Tax-free scholarships are not included in NY income, and any taxable scholarship amounts (as on your federal return) are subject to NY state tax. |
| North Carolina | Yes – North Carolina follows the federal rules regarding scholarships. Any taxable scholarship funds must be reported as income in NC, while eligible educational scholarship amounts remain tax-exempt. |
| North Dakota | Yes – North Dakota uses federal taxable income as the starting point for state taxes. This means ND treats scholarships the same as the IRS does: taxable portions are taxed, qualified portions are not. |
| Ohio | Yes – Ohio aligns with federal definitions of income. If you had to include part of a scholarship in your federal income, you’ll include it in Ohio income. No state-specific scholarship tax rules beyond federal conformity. |
| Oklahoma | Yes – Oklahoma follows federal tax treatment of scholarships. Any scholarship money that was taxable on your federal return is taxable for Oklahoma, while tax-free scholarship portions remain exempt. |
| Oregon | Yes – Oregon uses federal taxable income as a base. Scholarships that are tax-free under federal law are not taxed by Oregon; any federally taxable scholarship amount is included in Oregon taxable income. |
| Pennsylvania | Yes – Pennsylvania’s income tax covers limited income types. Qualified scholarships for education are not taxed by PA, but any portion that is essentially compensation (pay for teaching, etc.) is taxable under PA law. |
| Rhode Island | Yes – Rhode Island conforms to federal income inclusion rules. Taxable scholarship income (as determined on your federal return) is taxed by RI, and qualified scholarship amounts are excluded. |
| South Carolina | Yes – South Carolina follows federal guidance on scholarships. Any scholarship funds included in federal taxable income must be included on the SC return; no state tax on the portions that were tax-free federally. |
| South Dakota | No – South Dakota has no state income tax, so it does not tax scholarships at the state level. |
| Tennessee | No – Tennessee has no state income tax, so it does not tax scholarship income (TN formerly taxed only investment income, but that tax is now fully phased out). |
| Texas | No – Texas has no state income tax, so it does not tax scholarship or fellowship income at the state level. |
| Utah | Yes – Utah uses federal adjusted gross income for state taxes. That means any scholarship amounts taxed federally will be taxed in Utah, and any tax-free scholarship funds remain untaxed. |
| Vermont | Yes – Vermont conforms to federal definitions of taxable income. If a scholarship (or part of it) is taxable under federal law, it will be taxed by Vermont; qualified scholarship amounts stay exempt in VT. |
| Virginia | Yes – Virginia follows federal tax treatment. Taxable scholarship income is included in VA taxable income, and scholarships used for tuition/fees (tax-free federally) are not taxed by Virginia. |
| Washington | No – Washington State has no personal income tax, so it does not tax scholarship income at the state level. |
| West Virginia | Yes – West Virginia aligns with federal rules for taxing scholarships. Any portion of a scholarship that is taxable on your federal return is taxable in WV, while any tax-exempt portion is not counted in WV income. |
| Wisconsin | Yes – Wisconsin generally follows federal definitions of income. Scholarships used for qualified expenses are not taxed, but any taxable scholarship income (as determined federally) is included in Wisconsin income. |
| Wyoming | No – Wyoming has no state income tax, so it does not impose any tax on scholarship funds. |
Real-World Examples: Scholarship Tax Scenarios
To make these rules clearer, let’s look at a few common scenarios and how the tax treatment works out in each case:
Scenario 1: Full Scholarship for Qualified Expenses (100% Tax-Free)
Situation: An undergraduate student receives a scholarship that covers only qualified education expenses. For example, let’s say you get a $12,000 scholarship and you use it entirely for tuition and required course materials.
Tax outcome: None of the scholarship is taxable. Because every dollar went toward tuition, fees, and required supplies, it meets the IRS criteria for a qualified scholarship.
| Scholarship Usage | Amount | Taxable? | Explanation |
|---|---|---|---|
| Tuition (required for enrollment) | $10,000 | No | Qualified education expense (tax-free) |
| Required textbooks & supplies | $2,000 | No | Qualified education expense (tax-free) |
| Total Scholarship used on qualified expenses | $12,000 | No | All funds used qualify, so $0 is taxable |
Scenario 2: Scholarship for Tuition + Living Expenses (Partially Taxable)
Situation: A student receives a scholarship larger than their tuition. Consider a $15,000 scholarship where the tuition and required fees total $10,000. The remaining $5,000 is used to pay for a dormitory room and meal plan.
Tax outcome: Part of the scholarship is taxable. The portion used for qualified expenses ($10,000 for tuition/fees) is tax-free, but the $5,000 used for room and board is taxable income. The student would need to report $5,000 as income on their tax return.
| Scholarship Usage | Amount | Taxable? | Explanation |
|---|---|---|---|
| Tuition & required fees | $10,000 | No | Qualified education expense (not taxed) |
| Room and board (housing & meals) | $5,000 | Yes | Not a qualified expense (taxable portion) |
| Total Scholarship | $15,000 | Partially (Yes on $5k) | $10k is tax-free; $5k is taxable |
Scenario 3: Fellowship Stipend or Assistantship (Taxable Compensation)
Situation: A graduate student receives an assistantship that provides a tuition waiver plus a stipend in exchange for working as a teaching assistant (TA). For example, imagine the package covers $8,000 of tuition and pays a $12,000 stipend for the academic year as compensation for teaching duties.
Tax outcome: The stipend is taxable, but the tuition waiver is tax-free. In this case, the $12,000 stipend is essentially a salary for services (teaching), so it is taxable income (the student will receive a W-2 for it). The $8,000 tuition waiver, however, qualifies as a tax-free tuition reduction (since the student is a degree candidate and the waiver is provided by the school).
| Assistantship Benefit | Amount | Taxable? | Details |
|---|---|---|---|
| Tuition waiver (grad tuition covered by university) | $8,000 | No | Treated as a qualified tuition reduction (not taxed) |
| Stipend (payment for TA teaching work) | $12,000 | Yes | Treated as wages/compensation (taxable, W-2 income) |
| Total Value of Aid | $20,000 | Partially (Yes on stipend) | $8k tuition benefit tax-free; $12k is taxable earnings |
Common Mistakes to Avoid
When dealing with scholarships and taxes, students often make errors that can lead to missed opportunities or IRS issues. Here are some common mistakes to avoid:
❌ Assuming “Scholarships Aren’t Income” for Everything: Don’t automatically assume all scholarship money is tax-free. Many students mistakenly believe that because it’s financial aid, it won’t be taxed. Always consider how the funds are used – if you spend scholarship dollars on non-qualified expenses (like rent or travel), that portion is taxable income.
❌ Not Reporting Taxable Scholarships on a Tax Return: If part of your scholarship is taxable, you must report it, even if you didn’t receive a traditional tax form like a W-2. A common mistake is failing to report a scholarship refund (excess aid that the school gives you after covering tuition) which often represents taxable income. The IRS can flag this if your 1098-T form shows scholarships exceeding tuition. Avoid unpleasant surprises by reporting any taxable portion on your Form 1040 (with “SCH” noted).
❌ Double-Dipping Education Tax Benefits: This happens when students or parents try to claim a tax credit (like the American Opportunity Credit) or deduction for expenses that were actually paid by a tax-free scholarship. For example, if your tuition was covered by a scholarship and you also claim the AOTC for that same tuition, that’s not allowed. Make sure to only claim credits or deductions for out-of-pocket qualified expenses (or intentionally include the scholarship as income if planning a tax-credit strategy, with proper guidance).
❌ Ignoring Scholarship Taxability for State Taxes or FAFSA: Some assume if it’s tax-free federally, they don’t need to think about it elsewhere. While most states follow the federal lead, you still have to include any taxable portion on your state income tax return. Also, on the FAFSA, any taxable scholarship income will count against you for next year’s financial aid. Forgetting this could mean less aid or an unexpected state tax bill.
❌ Treating Stipends or TA Payments as “Free Money”: Students with fellowships or assistantships sometimes don’t realize their stipend is taxable. If you’re getting a monthly living stipend or payment for teaching/research, budget for the taxes on that income. Don’t be caught off guard in April – if no taxes are withheld on a stipend, you might need to make estimated tax payments to avoid penalties.
❌ Not Keeping Documentation: It’s wise to keep receipts and records of how you used your scholarship funds. In case of an audit or questions, you want to be able to show that, for example, you spent $3,000 of your scholarship on required course materials (justifying why that portion was tax-free). Not having documentation won’t automatically make it taxable, but having proof can save headaches if you need to defend your tax return.
Pros and Cons of Tax-Free vs Taxable Scholarship Funds
Sometimes students have choices in how they use scholarship funds (or whether to report some as taxable to claim credits). Here is a breakdown of the pros and cons of keeping a scholarship fully tax-free versus having a portion become taxable:
| Approach | Pros 😊 | Cons 😟 |
|---|---|---|
| Use Scholarship Only for Qualified Expenses (keep it tax-free) | – No income tax owed on the scholarship money – Simplified tax filing (no extra income to report) – Scholarship doesn’t increase your taxable income or potentially trigger kiddie tax | – Cannot claim education tax credits or deductions for expenses covered by the scholarship (no double benefit) – If you have only tax-free aid, you might miss out on credits like the AOTC unless you have other paid expenses – Tax-free aid still reduces financial need on paper (affecting need-based aid, though it’s better than a loan or taxable income) |
| Allow/Use Part of Scholarship for Non-Qualified Expenses (making that portion taxable) | – Gives flexibility to cover living costs or other needs with scholarship funds – Potential to qualify for or increase an education tax credit (by having some tuition not covered by tax-free aid, you can claim a credit on that amount) – Taxable portion might count as “compensation” for IRA contributions if it’s from a stipend | – You’ll owe income tax on the portion used for non-qualified expenses (reducing the net benefit of the scholarship) – Increases your taxable income for the year (which could affect your tax bracket or financial aid formula) – If the amount is large and you’re a dependent, it could be subject to the kiddie tax (taxed at your parent’s rate) |
FAQ: Quick Answers to Common Questions
Q: Do I have to pay taxes on scholarship money?
A: Yes. Scholarships are taxable if used for non-qualified expenses or given in exchange for work. Funds used for tuition, required fees, and course materials are not taxed.
Q: Is my scholarship taxable if I’m not pursuing a degree?
A: Yes. Scholarships or grants received when you’re not a degree candidate are fully taxable. The IRS tax-free scholarship rules only apply if you’re enrolled in a program leading to a degree or certificate.
Q: Are Pell Grants taxable income?
A: Yes – if you use a Pell Grant for living expenses. Pell Grants (like any scholarship) are tax-free only when spent on tuition, fees, and required course materials at a qualified school.
Q: Do I need to file a tax return for a taxable scholarship?
A: Yes. If your taxable scholarship plus other income exceeds the standard deduction (or if any tax was withheld), you should file a return. This ensures you report income and can get any refund due.
Q: Is a scholarship refund check taxable?
A: Yes. A refund check from your college (excess scholarship money after tuition) is taxable in most cases. That refund typically means part of your scholarship went to non-qualified expenses.
Q: Does my scholarship count as income on FAFSA?
A: No. Tax-free scholarships are not treated as taxable income on FAFSA. However, any taxable scholarship amount will appear in your adjusted gross income, which FAFSA uses to assess financial need.
Q: Do my parents report my scholarship on their taxes?
A: No. A scholarship awarded to a student is not reported on the parent’s tax return. If any portion is taxable, it is the student’s income and should be reported on the student’s own return.
Q: Are stipends or fellowship payments taxable?
A: Yes. Most stipends and graduate fellowship payments are taxable. They are either compensation for services (taxable wages) or support for living expenses (taxable as scholarship income if not for tuition/books).
Q: Are athletic scholarships taxable?
A: No, not if used for tuition, required fees, and books. Athletic scholarships follow the same rules: tax-free for qualified education costs, but yes taxable if used for housing or other non-qualified expenses.
Q: Do states tax scholarships differently than the IRS?
A: No. In most cases, states follow the federal rules. If your scholarship is taxable on your federal return, it’s taxable on your state return (unless you’re in a state with no income tax).