Money used for room, board, or other living expenses
This is the most common taxable portion of a scholarship. Even if your school lets you apply the funds toward a dorm bill or meal plan, the IRS doesn’t count that as a qualified expense, so that portion goes on your tax return as income.
Money spent on nonrequired items
Travel to and from campus, a laptop your course doesn’t require, or other optional purchases don’t qualify either, even when they’re things students commonly buy with scholarship money.
Payments for teaching, research, or other required service
If part of your award pays you to teach, do research, or perform other services as a condition of receiving it, the IRS treats that portion as wages, not scholarship income. It’s taxable no matter how you spend it, with narrow exceptions like the National Health Service Corps Scholarship Program.
Scholarships awarded to non-degree students
If you’re not a degree candidate at an eligible educational institution, none of your scholarship money is tax-free. That’s true even if you use every dollar on tuition and books.
Scholarship money left over after qualified expenses
Add up your qualified expenses (tuition, required fees, and required books and supplies) and compare that total to your total scholarship and grant income for the year. Any amount left over is taxable income, regardless of how you spent it or if it’s spent at all.
