A Simple Look at Whether Scholarships Are Taxable or Not

  1. For tax purposes, consider Scholarships, Fellowships, Pell Grants, "stipents", and other grants all under the category of "Scholarships."

  2. Scholarships are taxable as W-2 wages.
    1. Universities usually do not issue W-2's for scholarships.
    2. If you did not receive a W-2, write "SCH $xxx" on the dotted line to the left of the box on Scd 1040 or Sch 1040-A where you enter the W-2 wages. "$xxx" represents the amount of the taxable scholarship.

  3. But some of the Scholarship may be excludable.
    1. If you are not a candidate for a degree, there is no exclusion. The scholarship is fully taxable as W-2 income.
    2. If you are a candidate for a degree, then only the following are excludable:
      1. Tuition
      2. Fees
      3. Books, Supplies, and Equipment if required of all students in the course.
    3. If some of the scholarship is excludable, subtract it from the gross and enter only the net taxable amount with other W-2 income. Remember to write "SCH $xxx" on the dotted line.

  4. The following items are never excludable from taxable scholarships:
    1. Room
    2. Board
    3. Travel
    4. Payments for other services. For example, cadets and midshipmen at the U.S. military, naval, Coast Guard, Air Force, and Merchant Marine academies are active duty officers. They are paid for their services. The money is not a scholarship.

  5. Tuition reductions are taxable unless the recipient is pursuing a graduate degree and the recipient teaches or does research for the institution.