Is scholarship money taxable in 2025?

Whether scholarship money is taxable depends on how it is used and whether you are a degree candidate at an eligible institution.

Tax-free portion: Scholarship and fellowship amounts used for qualified education expenses are not taxable if you are a degree-seeking student. Qualified expenses include tuition, fees, books, supplies, and equipment required for courses.

Taxable portion: Any scholarship money used for room and board, travel, research, or other non-qualified expenses is taxable income. This includes stipends designated for living expenses. Report taxable scholarship income on Form 1040, line 1 (wages line). If no W-2 was issued, write "SCH" next to line 1.

Examples:

• Full-ride scholarship covering $50,000 tuition + $15,000 room and board = $15,000 is taxable
• $10,000 scholarship, $10,000 tuition = $0 taxable
• $20,000 scholarship, $12,000 tuition, $8,000 living expenses = $8,000 taxable

Athletic scholarships: These follow the same rules. A full athletic scholarship that covers tuition AND room and board has a taxable component for the room and board portion.

Graduate assistantships and fellowships: Payments for teaching or research services are generally taxable, even if called a "fellowship." If the work is required as a condition of receiving the scholarship (rather than required of all degree candidates), the payment is taxable wages. Your university should issue a W-2 or 1099.

Education credits interaction: You cannot use the same expenses for both a tax-free scholarship exclusion and an education credit. In some cases, it is strategically better to treat part of a scholarship as taxable income so you can claim the American Opportunity Tax Credit (up to $2,500) on those expenses.