Are scholarships taxable?

Scholarships can be tax-free, partly taxable, or taxable. Under U.S. federal rules, qualifying degree candidates can generally exclude amounts used for required tuition, fees, books, supplies, and course equipment.

What to know before you act

Room and board, travel, and optional purchases generally do not qualify for that exclusion. Payments for teaching or other services are generally taxable, with limited exceptions. Receiving money through a school or calling it a scholarship does not by itself determine the tax result.

Keep an expense-by-expense record. A scholarship provider’s permitted uses can be broader than the IRS definition of tax-free expenses. Education credits and tax-free education benefits also have coordination rules; the same expense cannot simply be counted twice. State rules and nonresident tax treatment may differ.

Your next steps

• Save the award agreement, payment records, and education receipts.
• Separate required course expenses from living expenses.
• Use current IRS Publication 970 or a qualified tax adviser for your return.

For the next step, use the compare financial aid offers. Use a worked example and worksheet to compare net price, loans, and renewal conditions.