Scholarships and Fellowship Grants

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of their studies.

A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

Amount of scholarship or fellowship grant. The amount of a scholarship or fellowship grant includes the following.

• The value of contributed services and accommodations. This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship grant.

• The amount of tuition, matriculation, and other fees that are paid for or remitted to the student to aid the student in pursuing study or research.

• Any amount received in the nature of a family allowance as a part of a scholarship or fellowship grant.

Tax-Free Scholarships and Fellowship Grants

A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

You may be able to increase the combined value

TIP of an education credit and certain educational as-

sistance if the student includes some or all of the educational assistance in income in the year it is received. See the examples under Coordination with Pell grants and other scholarships in chapter 2 and chapter 3.

A scholarship or fellowship grant is tax free only to the extent :

• It doesn’t exceed your qualified education expenses;

• It isn’t designated or earmarked for other purposes (such as room and board), and doesn’t require (by its terms) that it can’t be used for qualified education expenses; and

• It doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship. For exceptions, see Payment for services, later.

Use Worksheet 1-1 to figure the amount of a scholar- ship or fellowship grant you can exclude from gross income.

Candidate for a degree. You are a candidate for a degree if you:

1. Attend a primary or secondary school or are pursuing a degree at a college or university; or

2. Attend an educational institution that:

a. Provides a program that is acceptable for full

credit toward a bachelor’s or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and

b. Is authorized under federal or state law to provide

such a program and is accredited by a nationally recognized accreditation agency.

Eligible educational institution. An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it regularly carries on its educational activities.

Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:

• Tuition and fees required to enroll at or attend an eligible educational institution; and

• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that don’t qualify. Qualified education expenses don’t include the cost of:

• Room and board,

• Travel,

• Research,

• Clerical help, or

• Equipment and other expenses that aren’t required for enrollment in or attendance at an eligible educational institution.

Payment for services. Generally, you can’t exclude from your gross income the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. This applies even if all candidates for a degree must perform the services to receive the degree. However, see Exceptions next.

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Tuition Reductions

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Worksheet 1-1. Taxable Scholarship and Fellowship Grant Income

Keep for Your Records

1. Enter the total amount of any scholarship or fellowship grant for 2025. See Amount of scholarship or fellowship grant , earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.

• If you are a degree candidate at an eligible educational institution, go to line 2.

• If you aren’t a degree candidate at an eligible educational institution, stop here . The entire amount is taxable . For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowship Grants , earlier.

2. Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Don’t include amounts received for these items under the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, or a comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in that section) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.

3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.

4. Enter the amount from line 3 that your scholarship or fellowship grant required you to use for other than qualified education expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.

5. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.

6. Enter the amount of your qualified education expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.

7. Enter the smaller of line 5 or line 6. This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship grant) . . . . . . . . . . . . . . . . . . . . . . . . 7.

8. Subtract line 7 from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.

9. Taxable part. Add lines 2, 4, and 8. See Reporting Scholarships and Fellowship Grants , earlier, for information on how to report this amount on your tax return . . . . . . . . . . . . . . . . . . . 9.

Exceptions. You don’t have to treat as payment for services the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services if you receive the amount under:

• The National Health Service Corps Scholarship Program,

• The Armed Forces Health Professions Scholarship and Financial Assistance Program, or

• A comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in that section).

Example 1. You received a scholarship of $2,500. The scholarship wasn’t received under any of the exceptions mentioned above. As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Of the $2,500 scholarship, $1,000 represents payment for teaching. The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Your qualified education expenses were at least $1,500. Assuming that all other conditions are met, the most you can exclude from your gross income is $1,500. The $1,000 you received for teaching must be included in your gross income.

Example 2. You are a candidate for a degree at a medical school. You receive a scholarship (not under any of the exceptions mentioned above) for your medical education and training. The terms of your scholarship require you to perform future services. A substantial penalty applies if you don’t comply. The entire amount of your grant

is taxable as payment for services in the year it is received.

Athletic Scholarships

An athletic scholarship is tax free only if and to the extent it meets the requirements discussed earlier.

Worksheet 1-1. You can use Worksheet 1-1 to figure the tax-free and taxable parts of your athletic scholarship.

Taxable Scholarships and Fellowship Grants

If and to the extent your scholarship or fellowship grant doesn’t meet the requirements described earlier, it is taxable and must be included in gross income. You can use Worksheet 1-1 to figure the tax-free and taxable parts of your scholarship or fellowship grant.

Reporting Scholarships and Fellowship Grants

Whether you must report your scholarship or fellowship grant depends on whether you must file a return and whether any part of your scholarship or fellowship grant is taxable.

If your only income is a completely tax-free scholarship or fellowship grant, you don’t have to file a tax return and no reporting is necessary. If all or part of your scholarship or fellowship grant is taxable and you are required to file a

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tax return, report the taxable amount as explained below. You must report the taxable amount whether or not you received a Form W-2. If you receive an incorrect Form W-2, ask the payer for a corrected one.

For information on whether you must file a return, see Pub. 501, Dependents, Standard Deduction, and Filing Information, or your income tax form instructions.

How To Report

How you report any taxable scholarship or fellowship grant income depends on which return you file.

Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, include any taxable amount reported to you in box 1 of Form W-2 in the total on line 1a. Include any taxable amount not reported to you in box 1 of Form W-2 on Schedule 1 (Form 1040), line 8r.

Form 1040-NR. If you file Form 1040-NR, report any taxable amount on Schedule 1 (Form 1040), line 8r. Generally, you must report the amount reported to you in box 2 of Form(s) 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. For more information, see the Instructions for Form 1040-NR.