Scholarships and Fellowships: Which Part Counts as Income?
Published November 6, 2026
A scholarship or fellowship can help pay for school, but not every dollar is always excluded from income. The IRS looks at how each dollar is used. This guide explains the general rules for a degree candidate at an eligible school. It is not advice about your return.
The basic rule
The IRS says a scholarship, a fellowship grant, or another grant can be excluded from income, in part or in full, when two things are true. First, you are a candidate for a degree at an educational institution that has a regular faculty, a set curriculum, and a regularly enrolled body of students. Second, the money pays for tuition and the enrollment costs required to attend, or for course items such as books, supplies, and equipment that the courses require.
What must be reported
Amounts used for incidental costs are income. The IRS lists room and board, travel, and optional equipment. Payments for teaching, research, or other services that you must do as a condition of the award are also income.
Some service-based programs are treated differently. Examples include certain National Health Service Corps scholarships and Armed Forces health scholarships. The IRS covers those separately, so read the topic before you assume they follow the general rule.
Where to report the taxable part
If the taxable part appears in box 1 of your Form W-2, include it in the wages on line 1a of Form 1040. If the taxable amount is not reported to you in box 1 of your W-2, enter it on line 8 of Schedule 1 (Form 1040), and attach that schedule.
Estimated tax
If part of the award is taxable, you may need to make estimated tax payments on that added income. The IRS topic points to its estimated tax guidance. Our guide to estimated tax safe harbor rules explains the general schedule.
Fellowships and other grants
A fellowship grant is generally an amount paid to help you pursue study or research. Need-based grants, such as Pell Grants, and Fulbright grants are other types of grants that the IRS covers under the same topic. The same two-part test applies: what the money pays for, and whether you are a degree candidate at an eligible school.
Scholarships tied to services
If a scholarship or fellowship requires you to teach, do research, or perform other services, the amount tied to those services is income. Some federal service programs are excluded from this rule, which is why the program name matters.
Keep the records
Keep the award letter, the school's bill, and receipts for books and required course supplies. Keeping them separate lets you show which money paid for tuition and which paid for living costs. For the school form you may receive, see our guide to student education credits and Form 1098-T.
Common mistakes
- Treating the whole award as excluded. Room, board, and travel are income.
- Forgetting a teaching or research payment that is a condition of the award.
- Assuming the W-2 covers everything. A taxable part that is not in box 1 still goes on line 8 of Schedule 1.
Next steps
Ask the school or sponsor for the award terms in writing. Sort the money into tuition and required course costs, and everything else. Compare that total with the forms you received, then report the taxable part where the schedule says to report it. Keep a copy of your return and the forms you used, so you can show later how you split the money.
Upload your documents and answer a few simple questions. Your preparer reviews every deduction and credit and lets you know when your return is ready to sign.
Sources: Sources: IRS, Topic no. 421, Scholarships, fellowship grants, and other grants (https://www.irs.gov/taxtopics/tc421); IRS, Publication 970 (2025), Tax Benefits for Education (https://www.irs.gov/pub/irs-pdf/p970.pdf) This is general information, not advice about your specific return.
