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Tax-Free Scholarships and Fellowship Grants: Education Tax Benefits (2025 IRS Guide)

This guide covers “Tax-Free Scholarships and Fellowship Grants” within education tax benefits. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 970 (2025), Tax Benefits for Education, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of their studies.

A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

Tax-Free Scholarships and Fellowship Grants

A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

.You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. See the examples under Coordination with Pell grants and other scholarships in chapter 2 and chapter 3..

A scholarship or fellowship grant is tax free only to the extent:

  • It doesn’t exceed your qualified education expenses;

  • It isn’t designated or earmarked for other purposes (such as room and board), and doesn’t require (by its terms) that it can’t be used for qualified education expenses; and

  • It doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship. For exceptions, see Payment for services, later.

Use Worksheet 1-1 to figure the amount of a scholarship or fellowship grant you can exclude from gross income.

Candidate for a degree.

You are a candidate for a degree if you:

  1. Attend a primary or secondary school or are pursuing a degree at a college or university; or

  2. Attend an educational institution that:

    1. Provides a program that is acceptable for full credit toward a bachelor’s or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and

    2. Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency.

Eligible educational institution.

An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it regularly carries on its educational activities.

Qualified education expenses.

For purposes of tax-free scholarships and fellowship grants, these are expenses for:

  • Tuition and fees required to enroll at or attend an eligible educational institution; and

  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that don’t qualify.

Qualified education expenses don’t include the cost of:

  • Room and board,

  • Travel,

  • Research,

  • Clerical help, or

  • Equipment and other expenses that aren’t required for enrollment in or attendance at an eligible educational institution.

Payment for services.

Generally, you can’t exclude from your gross income the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. This applies even if all candidates for a degree must perform the services to receive the degree. However, see Exceptions next.

Exceptions.

You don’t have to treat as payment for services the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services if you receive the amount under:

  • 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 section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in that section).

Example 1.

You received a scholarship of $2,500. The scholarship wasn’t received under any of the exceptions mentioned above. As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Of the $2,500 scholarship, $1,000 represents payment for teaching. The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Your qualified education expenses were at least $1,500. Assuming that all other conditions are met, the most you can exclude from your gross income is $1,500. The $1,000 you received for teaching must be included in your gross income.

Example 2.

You are a candidate for a degree at a medical school. You receive a scholarship (not under any of the exceptions mentioned above) for your medical education and training. The terms of your scholarship require you to perform future services. A substantial penalty applies if you don’t comply. The entire amount of your grant is taxable as payment for services in the year it is received.

Athletic Scholarships

An athletic scholarship is tax free only if and to the extent it meets the requirements discussed earlier.

Worksheet 1-1.

You can use Worksheet 1-1 to figure the tax-free and taxable parts of your athletic scholarship.

Figuring tax-free and taxable (Worksheet 1-1) Scholarships and fellowship grantsTaxable scholarship and fellowship grant income (Worksheet 1-1) WorksheetsScholarships and fellowship grants (Worksheet 1-1)Worksheet 1-1. Taxable Scholarship and Fellowship Grant Income

1. Enter the total amount of any scholarship or fellowship grant for 2025. See Amount of scholarship or fellowship grant, earlier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. _____

  • If you are a degree candidate at an eligible educational institution, go to line 2.

  • If you aren’t a degree candidate at an eligible educational institution, stop here. The entire amount is taxable. For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowship Grants, earlier.
2. Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Don’t include amounts received for these items under 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 section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in that section) 2. _____
3. Subtract line 2 from line 1 3. _____
4. Enter the amount from line 3 that your scholarship or fellowship grant required you to use for other than qualified education expenses 4. _____
5. Subtract line 4 from line 3 5. _____
6. Enter the amount of your qualified education expenses 6. _____
7. Enter the smaller of line 5 or line 6. This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship grant) 7. _____
8. Subtract line 7 from line 5 8. _____
9. Taxable part. Add lines 2, 4, and 8. See Reporting Scholarships and Fellowship Grants, earlier, for information on how to report this amount on your tax return 9. _____

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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