If a scholarship is used for living expenses, it is taxable.
Only when a scholarship is used to pay tuition and fees might it be non-taxable, HOWEVER:
According to the IRS:
"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)."
Read more in IRS Pub 970
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