Taxable Scholarships and Fellowships
If you received a scholarship or fellowship, all or part of it may be taxable, even if you did not receive a Form W-2. Generally, the entire amount is taxable if you are not a candidate for a degree.
If you are a candidate for a degree, you generally can exclude from income that part of the grant used for:
You cannot exclude from income any part of the grant used for other purposes, such as room and board.
A scholarship generally is an amount paid for the benefit of a student at an educational institution to aid in the pursuit of studies. The student may be in either a graduate or an undergraduate program.
A fellowship grant generally is an amount paid for the benefit of an individual to aid in the pursuit of study or research.
Example 1
Tammy Graves receives
a $6,000 fellowship grant that is not designated for any specific use. Tammy is
a degree candidate. She spends $5,500 for tuition and $500 for her personal
expenses. Tammy is required to include $500 in income.
Example 2
Ursula Harris, a
degree candidate, receives a $2,000 scholarship, with $1,000 specifically
designated for tuition and $1,000 specifically designated for living expenses.
Her tuition is $1,600. She may exclude $1,000 from income, but the other $1,000
designated for living expenses is taxable and must be included in
income.
Payment for Services
All
payments you receive for past, present, or future services must be included in
income. This is true even if the services are a condition of receiving the grant
or are required of all candidates for the degree.
Example
Gary Thomas receives a
scholarship of $2,500 for the spring semester. As a condition of receiving the
scholarship, he must serve as a part-time teaching assistant. Of the $2,500
scholarship, $1,000 represents payment for his services. Gary is a degree
candidate, and his tuition is $1,600. He can exclude $1,500 from income as a
qualified scholarship. The remaining $1,000, representing payment for his
services, is taxable.
Fulbright Students and
Researchers
A Fulbright grant is generally treated as any other
scholarship or fellowship in figuring how much of the grant can be excluded. If
you receive a Fulbright grant for lecturing or teaching, it is payment for
services and subject to tax.
Pell Grants, Supplemental Educational Opportunity Grants, and Grants to States for State Student Incentives. These grants are nontaxable scholarships to the extent used for tuition and course-related expenses during the grant period.
Reduced Tuition
You may be
entitled to reduced tuition because you or one of your parents is or was an
employee of the school. If so, the amount of the reduction is not taxable so
long as the tuition is for education below the graduate
level. (But see Graduate student exception, next.) The reduced
tuition program must not favor any highly paid employee. The reduced tuition is
taxable if it represents payment for your services.
Graduate Student
Exception
Tax-free treatment of reduced tuition can also apply to a
graduate student who performs teaching or research activities at an educational
institution. The qualified tuition reduction must be for education furnished by
that institution and not represent payment for services.
Contest prizes
Scholarship
prizes won in a contest are not scholarships or fellowships if you do not have
to use the prizes for your education. If you can use the prize for any purpose,
the entire amount is taxable.
Qualified State Tuition
Program
If you receive distributions from a qualified state tuition
program, only the amount that is more than the amount contributed to the program
is taxable. Part of the benefits may qualify as a nontaxable scholarship or
fellowship (for example, matching-grant amounts paid under the program to a
degree candidate). Other benefits are partly a nontaxable return of the
contributions made to the program on your behalf (for example, by your parents).
You must include in your income the part of the benefits that is neither a
nontaxable scholarship or fellowship nor a return of contributions. For more
information about qualified state tuition programs, see Publication 525 ,
Taxable and Nontaxable Income, but for more information on a specific program,
contact the state or agency that established and maintains it.
Other Grants or Assistance
If
you are not sure whether your grant qualifies as a scholarship or fellowship,
ask the person who made the grant.
Additional information
See Publication 970, Tax
Benefits for Education, for more information on how much of your scholarship or
fellowship is taxable.
How To Report
If you file Form 1040EZ, include the taxable amount of your scholarship or fellowship on line 1. Print "SCH" and any taxable amount not reported on a W-2 form in the space to the right of the words "W-2 form(s)" on line 1.
If you file Form 1040A or Form 1040, include the taxable amount on line 7. Print "SCH" and any taxable amount not reported on a W-2 form in the space to the left of line 7 on Form 1040A or on the dotted line next to line 7 on Form 1040.
Other Income
If you are not sure whether to include any item of income on your return, see Publication 525 .
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