Scholarships and Fellowships

If you receive a scholarship or fellowship, the amounts you receive may be tax free.

Generally, a scholarship or fellowship is tax free if:

  1. You are a candidate for a degree at an eligible educational institution, and
  2. You use the scholarship or fellowship to pay qualified education expenses

To meet the first condition above, you must be a candidate for a degree at an educational institution that maintains a regular faculty and curriculum. The institution must also have a regularly enrolled body of students in attendance at the place where it carries on its educational activities.

To meet the second condition above, the amounts you receive must be used for:

  • tuition and fees required for enrollment or attendance at the educational institution, or
  • fees, books, supplies, and equipment required for courses at the educational institution.

Any amounts you use for room and board, travel, optional equipment, or other incidental expenses do not meet the second condition and must be included in taxable income. You must also include in income amounts received as payment for teaching, research, or other activities required as a condition for receiving the scholarship or fellowship.

You do not need to include any amounts received for services required by the National Health Service Corps Scholarship Program and Armed Forces Health Professions Scholarship and Financial Assistance Program.

To enter your scholarship or fellowship income in TaxAct®:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Education to expand the section, then click Student Worksheet (tuition, scholarships)
  3. Click +Add Student Information to create a new copy of the worksheet, or click Review to review a worksheet already created. 
  4. On the Student Information - Qualifications screen, check all the applicable boxes for the student, then click Continue
  5. If the scholarship or grant amount is reported on Form 1098-T, click Yes on the screen titled Student Information - Form 1098-T and enter your information on the screens that follow. Otherwise, click No.
  6. Continue to the screen titled Student Information - Education Assistance. (If you entered scholarship or grant information from Form 1098-T, that amount will transfer to this screen.)
  7. Enter the amount of the scholarship or fellowship in the applicable fields, then click Continue.
  8. On the following screens, you will need to enter the portion of the scholarship income that was used for teaching, research, and other services.

Note: If your Form 1098-T includes employer-provided amounts in Box 5, you should subtract the employer-provided portion from the amount you enter for Box 5 in TaxAct (step 5 above). This amount should be entered as employer-provided education benefits on the screen titled Student Information – Education Assistance (step 6 above).

For example, if the Form 1098-T you receive reports $10,000 in Box 5, but that amount includes $3,000 in employer-provided assistance, you would enter $7,000 as your Box 5 amount. The remaining $3,000 would then be entered as employer-provided benefits on the education assistance screen.

Additional Information

See IRS Publication 970 Tax Benefits for Education for more information.