Scholarships, fellowships, and Pell grants received by registered students who are working towards a degree at a college, university, or other accredited educational institution are generally nontaxable as long as the money is used for qualified education expenses.
On the flip side, you can't claim education credits or deduct expenses that were paid with these tax-free funds
Scholarships or portions of scholarships may be taxable. It all depends on how you use them.
Box 5 has your scholarship or grant amount. According to numbers above, you should be taxed on it as income unless the information on your 1098-T is incorrect or entered into TurboTax wrong.. Sometimes it shows as income until you finish entering the expenses and then the software realizes there is no excess to tax.
If you use your scholarship to pay for any of these, it counts as income and the amount paid is taxable:
- Room and board
- Travel
- Any fees, books, and supplies or equipment that are not required for your courses
If you’re getting a degree at an eligible school, your scholarship is tax-free when used for:
- Tuition and fees
- Fees, books, supplies or equipment required for your courses
- Any scholarship or fellowship for services received under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program
For example, if you used your scholarship to pay for tuition and room and board, you would be taxed on the room and board payment but not tuition.
