Are scholarships, fellowships, and grants considered taxable income?
Generally speaking, scholarships, fellowships, and Pell grants are considered tax-free benefits if paid to an eligible student enrolled at an eligible institution. For tax purposes, federal assistance or Pell Grants are considered scholarships.
A scholarship or grant is tax-free to you if you meet the following qualifications:
- You are a candidate for a degree at a primary or secondary school or are pursuing a degree at a college or university,
- You use the scholarship, grant, or fellowship to pay qualified education expenses,
- You attend an accredited educational institution that is authorized to provide a program that is acceptable for full credit toward a bachelor’s or higher degree or a program training to prepare students for gainful employment in a recognized field.
Can I get a credit or deduction for education expenses that were paid with tax-free dollars?
No. When you pay qualified education expenses with these tax-free funds, you cannot get an education credit or deduction for those expenses, as you didn't pay for those expenses (the scholarship or grant paid for them).
You must reduce the qualified education expenses by the amount of any tax-free educational assistance, such as a scholarship or grant. TurboTax guides you through this.
Who can claim education credits is a common question. See Who Claims the Education Credit: Parent/Dependent/or Relative?.
Some other questions: