Are Scholarships Taxable Income?

While scholarships won't get you any tax benefits, their status as a form of free money financial aid makes them tax exempt, which makes it easy for students to apply their funding. It is important to look at the fine print when accepting tax-free scholarships, though, because, in certain circumstances, they can be taxable.

Depending on what college or university you attend, your scholarship money may be considered taxable income. You must attend one of the schools that the IRS considers an eligible educational institution.

To see if your school is an eligible institution, you can go on the U.S. Department of Education’s Database of Accredited Post Secondary Institutions and Programs (DAPIP) or the Federal Student Loan Program list. If your school or lender is not on one of these lists, you can always ask your school if they are an eligible educational institution.

Scholarships won through Bold.org are not considered taxable income. Sign up now to see what scholarships you are eligible to apply for.

Additionally, scholarship money can only be applied to qualified education expenses. These qualified expenses include the price of tuition and other degree-related costs or other expenses related to education. Room and board and other living expenses aren't considered qualified education expenses, so a portion of your scholarship will be taxable if you use it for these purposes. Scholarships considered taxable income occur when all the money is not used towards eligible costs, such as tuition, course fees, and book expenses, meaning they will no longer be a tax-free scholarship.

If you receive the funds in exchange for providing services such as teaching, research, helping out in the admissions office, or even other college related costs that aren't qualified, the money becomes taxable, or at least the portion related to payment for your services is considered income.

Although money for services is taxable, you don't need to include in gross income any amounts you receive for services that are required by the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, or a comprehensive student work-learning-service program (as defined in the Higher Education Act of 1965).

Emergency financial aid grants, including those given out during the COVID-19 pandemic, are also not generally taxable income. For more information on what is considered income, you can visit the Internal Revenue Service (IRS) website.

Do I have to report scholarships on taxes?

If the scholarship money is considered taxable income, scholarship funds should be reported on taxes, because it is subjected to scholarship taxation. According to tax rules, if the scholarship is not used for a qualified education expense or if you are not attending an eligible educational institute, it loses its tax-free status. In other words, using all the money for non-qualified expenses or at an unofficial degree program makes the scholarships taxable, so you should engage in some tax preparation.

How to report scholarships on taxes

You typically must claim the portion of the scholarship financial aid that’s not tax-free on your own tax return, even if you're considered a dependent on your parents’ tax returns. The Internal Revenue Service (IRS) is a great resource if you need to file tax returns.

The requirement to file depends on how much income you had during the tax year. You must typically file a return if you earned more than the standard deduction for your filing status, but special rules apply to those who can be claimed as dependents on someone else’s tax returns.

Even if you don't have to file a federal income tax return, you should file to see if you can get any money back. If you have to pay your taxes for a scholarship or fellowship, the IRS may return some of the money from the taxable portion.

What happens if you don’t report a scholarship on taxes?

If college students don't report a scholarship to the federal government, colleges will eventually discover that they failed to correctly pay taxes. Colleges have many ways of learning about the scholarships won by their students. Some scholarship providers send the check directly to the college or make it co-payable to the student and college. Always make sure you're following the rules of your scholarship to ensure you won't get in trouble with your college and/or the government.

Frequently asked questions about scholarships and taxes

Do scholarships affect your tax return?

The short answer is that sometimes scholarship funds can. Any scholarships or grants you receive for non-qualified expenses count as taxable income. This includes expenses like room and board and other fees not required by your school. You will need to pay taxes on these expenses. There are other types of scholarships and grants which are considered taxable income. To learn more, visit our blog on how do scholarships work.

How do you report scholarships on taxes?

Generally, you report any portion of a scholarship, a fellowship grant, or another grant that you must include in gross income. If filing Form 1040 or Form 1040-SR, include the taxable portion in the total amount reported on the "Wages, salaries, tips" line of your tax return. If the taxable amount wasn't reported on Form W-2, enter "SCH" along with the taxable amount in the space to the left of the "Wages, salaries, tips" line.

If filing Form 1040-NR, report the taxable amount on the "Scholarship and fellowship grants" line.

Bold.org has exclusive scholarships that are not considered taxable income. Create your profile and start applying for these exclusive scholarship opportunities.