Per IRS Publication 970, page 5:
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.
A scholarship or fellowship grant is tax free only to the extent:
Candidate for a degree. You are a candidate for a degree if you:
Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:
Expenses that don't qualify. Qualified education expenses don't include the cost of:
To enter your scholarship or fellowship income in the TaxAct program, go to our Form 1098-T - Entering Scholarship Fellowship Income in Program FAQ.
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. This amount should be entered as employer-provided education benefits on the screen titled Student Information – Education Assistance.
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.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the webpage or document at the time it is accessed.