Scholarships and Fellowships: What Is Taxable

The short answer

A scholarship or fellowship grant is tax free only if you are a degree candidate and only up to your qualified education expenses — tuition, required fees, and required course materials. Money used for room, board, or travel is taxable scholarship income. Money paid for teaching, research, or other required services is compensation and is generally taxable even if your program requires the work.

Three kinds of scholarship money

Who is a degree candidate

• A student at a primary or secondary school, or pursuing a degree at a college or university.
• A student at an accredited institution that offers a program acceptable for full credit toward a bachelor's or higher degree, or training for gainful employment in a recognized occupation.
• If you are not a degree candidate, the entire scholarship or fellowship grant is taxable.

Other conditions for tax-free treatment

• The award must not be earmarked for other purposes, such as room and board, and its terms must not prevent you from using it for qualified expenses.
• The payment-for-services rule does not apply to amounts received under the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, and comprehensive student work-learning-service programs at work colleges.
• A scholarship that requires future services under a substantial penalty can be entirely taxable as payment for services in the year received.
• Pell grants and other Title IV need-based grants are treated as scholarships; a Fulbright grant is generally treated as a scholarship or fellowship grant.
• VA education benefits are tax free and are not reported as income.

How to report for 2025

• You must report the taxable amount whether or not you received a Form W-2.
• Form 1098-T shows amounts from the school, which may differ from what you actually paid or can use. Use Worksheet 1-1 in Publication 970 to figure the tax-free and taxable parts.
• For a dependent's filing requirement and standard deduction, taxable scholarship and fellowship grants count as earned income.

Education credits and dependent students

• No double benefit: tax-free scholarships reduce the expenses you can use for the American opportunity or lifetime learning credit.
• Choosing to include: a student may include some otherwise tax-free scholarship in income so it is treated as paying room and board. Publication 970 says this may increase the American opportunity credit only if qualified expenses minus scholarships are less than $4,000, and the extra income can also cost more than it saves.
• Who claims the credit: if a parent claims the student as a dependent, only the parent can claim the American opportunity credit for that student's expenses — but the scholarship income, if any is taxable, belongs to the student.

International students and nonresident aliens

• Same exclusion rules: degree candidates can exclude qualified scholarships from U.S. sources.
• Withholding: for F, J, M, or Q visa holders, the taxable part of a U.S.-source scholarship that is not payment for services is generally withheld at 14% (or a lower treaty rate); for non-degree candidates whose grant does not meet certain requirements, at 30% (or a lower treaty rate). Payment for services is withheld like wages.
• Form 1042-S shows the gross taxable amount, the rate, and the tax withheld. Use it to file Form 1040-NR.
• Source: scholarships are generally sourced by the payer's residence; grants for activities performed outside the U.S. are not U.S.-source income.
• Treaties may exempt scholarships or fellowships, with conditions and time limits. See Publication 901 and the IRS tax treaty tables.
• Education credits: a nonresident alien for any part of the year generally cannot claim them, with limited exceptions such as electing to file jointly with a U.S. citizen or resident spouse.

Examples (2025)