Scholarships and Fellowships

Per IRS Publication 970, page 5:

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.

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.

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

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

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.

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.