What expenses are considered required course books and supplies?

Books and supplies are excluded from income only if they are required for all students in the course. Optional materials, recommended supplements, personal computers not required for enrollment, and lab equipment purchased for personal use do not qualify. A required textbook listed in the course syllabus qualifies. A laptop required by the institution for all students qualifies. Software purchased for personal use, even if helpful for coursework, generally does not qualify unless the course requires that specific software for all enrolled students.

IRC §117 · Qualified Education Expenses · Federal Income Tax · TY 2025

Scholarship Tax Calculator

Q: Is a graduate school stipend taxable?

Yes, usually. Graduate stipends break into two parts. Fellowship grants used for tuition and required course expenses are tax-free under IRC §117 if you are a degree candidate. However, teaching assistant and research assistant stipends paid for services you perform are always fully taxable as ordinary income regardless of how you spend the money. Most graduate students owe federal income tax on their TA or RA compensation and must make quarterly estimated payments since no federal withholding is automatic.

Q: Do I need to pay quarterly estimated taxes on a scholarship?

Yes, if you have taxable scholarship or fellowship income and no employer withholding. Graduate students and fellowship recipients typically have no federal income tax withheld from their stipend payments. If your taxable scholarship income will cause you to owe $1,000 or more in federal tax for the year, you are generally required to make quarterly estimated payments using Form 1040-ES to avoid an underpayment penalty.

Q: Can I claim education credits on expenses paid with a scholarship?

No. You cannot claim the American Opportunity Credit (AOTC) or Lifetime Learning Credit (LLC) on the same tuition expenses used to exclude your scholarship from income. This is the coordination rule. If your scholarship covers all tuition, you cannot also claim tuition as a basis for the education credit. However, if your scholarship covers only part of tuition, you may claim credits on the remaining out-of-pocket expenses. In some cases it is strategically beneficial to treat scholarship funds as taxable and preserve tuition expenses for the AOTC.

Q: What if I am not a degree candidate?

If you are not a candidate for a degree at an eligible educational institution, the entire scholarship or fellowship is taxable as ordinary income. The IRC §117 exclusion applies only to degree candidates. Professional certificates, continuing education programs, and non-credit courses generally do not qualify for the exclusion unless the institution grants degrees and the recipient is enrolled as a degree-seeking student.

Find out if your scholarship, fellowship, or graduate stipend is taxable. Enter your award details, qualified expenses, and other income. The calculator applies IRC §117 to show your taxable amount and estimated federal tax.

Your Scholarship Details

Are you a degree candidate?

Must be enrolled at an accredited institution granting degrees

Total Scholarship / Fellowship Received ($)

Total dollar amount received this year before any spending

Amount Received for Services (TA/RA Stipend) ($)

Teaching or research assistant pay for required services - always taxable

Tuition and Required Fees Paid ($)

Required Books and Supplies ($)

Only amounts required for enrollment or required for all students in a course

Filing Status

Other Taxable Income ($)

Wages, self-employment, or other income (enter 0 if scholarship is your only income)

🎓

Enter your scholarship details
to see your estimated federal tax

Direct Answer

Scholarships used for tuition, required fees, and required course books and supplies are not taxable if you are a degree candidate (IRC §117). Amounts used for room and board, travel, or personal expenses are taxable as ordinary income. Teaching and research assistant stipends paid for services are always fully taxable regardless of how the money is spent. Non-degree recipients are taxed on the full scholarship amount. The taxable portion is ordinary income and must be reported on your Form 1040. No federal income tax is automatically withheld from scholarships, so you may need to make quarterly estimated payments.

Key Takeaways

Tuition and required fees paid with a scholarship are tax-free under IRC §117 if you are a degree candidate at an eligible institution.
Required course books and supplies are also excludable. Room and board, travel, and optional expenses are always taxable.
TA and RA stipends paid for services are fully taxable - the degree candidate status does not apply to the service portion.
Non-degree candidates: the entire scholarship is taxable as ordinary income.
Taxable scholarship is reported on Form 1040 Line 1a (if on W-2) or Schedule 1 (Form 1040) Line 8r (if not on W-2).
No federal withholding is automatic on scholarship income. Graduate students with taxable stipends typically must make quarterly estimated tax payments.
You cannot claim the AOTC or LLC on the same expenses already used to exclude your scholarship from income. This is the education credit coordination rule.

Written by Munib Ur Rehman · Reviewed by Nausheen Shahid (LMN Tax Inc.) · Published: April 2026

Scholarship Tax Quick Facts

Item	Tax Treatment	Status
Governing law	IRC §117 — Qualified Scholarships	Confirmed
Tuition and required enrollment fees	Excluded from income (degree candidates only)	Confirmed
Required course books and supplies	Excluded from income (degree candidates only)	Confirmed
Room and board	Always taxable as ordinary income	Confirmed
Travel, personal expenses	Always taxable as ordinary income	Confirmed
TA/RA stipends (for services performed)	Always fully taxable regardless of spending	Confirmed
Non-degree recipients	100% taxable - no exclusion available	Confirmed
Taxable amount reported on	Form 1040 Line 1a (W-2) or Sch. 1 Line 8r (no W-2)	Confirmed
Subject to self-employment tax?	No - scholarship income is not SE income	Confirmed
Federal withholding automatic?	No - must elect or pay quarterly estimates	Confirmed

When Scholarships Are Tax-Free vs Taxable

The IRC §117 exclusion divides scholarship and fellowship income into two categories. Amounts that fall within the exclusion are not reported as income. Amounts outside the exclusion are taxable as ordinary income and taxed at your marginal federal rate.

Step 1: Determine degree candidate status

The exclusion applies only to degree candidates - students pursuing a degree at a college, university, or other institution that maintains a regular faculty, curriculum, and enrolled student body. Students in continuing education, professional certificate programs, or non-credit courses generally do not qualify unless their institution grants degrees and they are enrolled as degree-seeking students.

Step 2: Separate service compensation from non-service awards

Any amount received as compensation for required services - teaching assistant duties, research assistant work, or other services required as a condition of the scholarship - is fully taxable regardless of how you spend it or whether you are a degree candidate. The service component is treated as wages. The non-service component (fellowship awards with no service requirement) may qualify for exclusion.

Step 3: Match non-service amounts against qualified expenses

Compare the non-service scholarship amount against qualified education expenses: tuition and fees required for enrollment or attendance, plus fees, books, and supplies required for courses. The lesser of the two is excluded from income. If your scholarship exceeds your qualified expenses, the excess is taxable. If your scholarship is less than your qualified expenses, the entire scholarship is excluded (your out-of-pocket tuition payments are not deductible, but they may qualify for education credits).

Step 4: Apply 2025 federal tax brackets

The taxable scholarship is added to your other income for the year. Together they form your gross income, reduced by the standard deduction to get taxable income. The marginal rate on scholarship income is your effective bracket on the additional income - usually the 22% bracket for graduate students with part-year stipends and no other income.

Exclusion Calculation — Degree Candidate, Mixed Award

Total scholarship received$28,000

Less: TA stipend for services$18,000 (taxable)

Non-service fellowship award$10,000

Tuition and required fees paid$9,500

Required books and supplies$400

Total qualified expenses$9,900

Excluded: min($10,000, $9,900)$9,900

Taxable: $18,000 service + $100 excess fellowship$18,100

In this example the TA stipend is entirely taxable. The non-service fellowship of $10,000 covers $9,900 in qualified expenses - so only $100 of the fellowship is taxable. Total taxable scholarship income is $18,100.

For a full explanation of these rules, scholarship coordination with education credits, and how to claim the deduction on your return, see our Scholarship Tax Guide.

LMN Tax Inc. — Client Pattern

The most common scholarship tax problem we see at LMN Tax Inc. is graduate students who receive TA or RA stipends and do not know that any federal income tax is owed. A PhD student receiving $22,000 in TA compensation and $8,000 in fellowship funds covering tuition has $22,000 in taxable income. With no other income and single filing status, their federal tax liability is approximately $700. Without quarterly payments or withholding, they face a balance due and potentially an underpayment penalty.

The second most common issue is the education credit coordination error. A student whose $18,000 scholarship covers $18,000 in tuition cannot then claim the AOTC using those same tuition dollars. The exclusion and the credit cannot be applied to the same expense. In some situations, particularly for students eligible for the full $2,500 AOTC, it makes sense to elect to treat some scholarship funds as taxable in order to preserve tuition as a basis for the credit. The net benefit requires a calculation: the credit at 25% on $10,000 ($2,500) may outweigh the additional tax on $8,000 of voluntary taxable scholarship income ($960 at 12%).

International students are a third category requiring careful attention. Nonresident aliens on F-1, J-1, or M-1 visas are subject to flat 14% withholding on taxable scholarships under IRC §1441 unless a tax treaty applies. Many students are unaware their school is withholding or that they can claim treaty benefits to reduce or eliminate the tax. Form 1040-NR is required; filing Form 1040 is not permitted for nonresident aliens.

Real-World Scenario

Scenario 1 — Undergraduate, Partial Scholarship Covering Room and Board

Total scholarship received$22,000

Amount for services (none)$0

Tuition and required fees paid$18,000

Required books and supplies$600

Room and board allocation$3,400 (remainder)

Total qualified expenses$18,600

Excluded portion: min($22,000, $18,600)$18,600

Taxable scholarship income$3,400

Other income (summer job wages)$8,000

Total income$11,400

Standard deduction (single 2025)$15,000

Taxable income$0

Federal income tax owed$0

Even though $3,400 of the scholarship is technically taxable, total income ($11,400) falls below the $15,000 single standard deduction. This student owes no federal income tax and does not need to file unless required by another rule (such as having self-employment income over $400).

Scenario 2 — PhD Student, TA Stipend Plus Fellowship, No Other Income

TA stipend (for teaching services)$21,000

Fellowship grant (no service requirement)$12,000

Total scholarship received$33,000

Tuition and required fees paid from fellowship$12,000

Non-service taxable excess$0

Total taxable: TA stipend only$21,000

Standard deduction (single 2025)$15,000

Taxable income$6,000

Federal tax (10% bracket)$600

Quarterly payment due (approx.)$150 per quarter

The PhD student has $21,000 in taxable TA income. The $12,000 fellowship covers tuition exactly, so none of it is taxable. After the standard deduction, taxable income is $6,000 and tax is $600 for the year. Since no employer withholds from stipend payments, this student should make four quarterly estimated payments of approximately $150 each using Form 1040-ES to avoid a penalty at filing.

Scenario 3 — Non-Degree Recipient, Professional Certificate, Wages Plus Grant

Grant amount (non-degree program)$8,000

Degree candidate exclusionNot available

Taxable scholarship income$8,000

Other income (wages)$38,000

Total income$46,000

Standard deduction (single 2025)$15,000

Taxable income$31,000

Federal tax (10%/12% brackets)$3,409

Tax without grant ($23,000 taxable)$2,449

Federal tax attributable to grant$960

Non-degree recipients receive no IRC §117 exclusion. All $8,000 is taxable. Because the grant is added on top of $38,000 in wages, it is taxed at the 12% marginal rate ($960). Wage withholding from employment does not cover the additional tax on the grant - this recipient should increase withholding or make a supplemental estimated payment.

When This Calculator Does Not Apply

International students (nonresident aliens): Nonresident aliens file Form 1040-NR and may be subject to flat 14% withholding on taxable scholarship income rather than regular graduated brackets. Tax treaty benefits may apply. This calculator uses resident-alien rules and graduated rates only.
Strategic scholarship allocation (AOTC planning): In some cases it is beneficial to elect to treat scholarship funds as taxable in order to preserve tuition expenses for the American Opportunity Credit. This calculator uses the default minimum-taxable approach and does not model the strategic allocation decision.
Employer-provided education assistance: Up to $5,250 in annual employer-provided educational assistance is excluded under IRC §127, not IRC §117. The exclusion and calculation rules differ. This calculator covers IRC §117 scholarships and fellowships only.
Tuition waivers as employee compensation: Graduate students whose tuition is waived as employment compensation (rather than as a scholarship) may face different tax treatment depending on whether the institution qualifies and the amount. Verify with your institution's tax office.
Loan forgiveness misclassified as scholarship: Some loan forgiveness programs are excluded from income under separate IRC sections (§108). This calculator covers scholarships and fellowships only - not loan forgiveness.
State income tax: This calculator covers federal income tax only. State treatment of scholarships varies. Most states follow the federal IRC §117 rules, but some differ. Verify your state's rules before filing.

What To Do Next

If You Have Taxable Scholarship Income

No federal income tax is automatically withheld from scholarship or fellowship payments. If your taxable scholarship will cause you to owe $1,000 or more in federal tax for the year, you are generally required to make quarterly estimated payments using Form 1040-ES. The payment due dates for 2025 are April 15, June 16, September 15, and January 15, 2026. Use the Estimated Tax Penalty Calculator to check whether an underpayment penalty may apply if you did not pay quarterly.

If You Are Considering Claiming Education Credits

The American Opportunity Credit (up to $2,500) and Lifetime Learning Credit (up to $2,000) cannot be claimed on expenses already used to exclude scholarship income. If your scholarship covers all tuition, you cannot claim these credits on the same tuition dollars. In some situations, electing to treat more scholarship income as taxable preserves tuition for the credit. Compare the credit value against the extra tax before deciding. The 1099 Tax Calculator can help estimate your total tax liability for the year.

Learn More

For a full explanation of scholarship tax rules, the degree candidate requirement, how to handle TA stipends, and the education credit coordination rules, see our Scholarship and Fellowship Tax Guide.

Frequently Asked Questions

Is a scholarship taxable income?

Scholarships are partially or fully taxable depending on how the money is used and whether you are a degree candidate. Under IRC §117, amounts used to pay tuition, required enrollment fees, and required course books and supplies are excluded from income. Amounts used for room and board, travel, or any other purpose are taxable as ordinary income. Non-degree candidates are taxed on the entire award.

Is a graduate school stipend taxable?

Yes, usually. TA and RA stipends received for services you perform are always fully taxable as ordinary income regardless of how you spend the money. Fellowship grants with no service requirement may be excluded to the extent they cover tuition and required course expenses. Most PhD students have a mix: taxable TA stipend plus a tax-free fellowship covering tuition. The TA portion goes on your tax return; the fellowship covering tuition does not.

Is room and board from a scholarship taxable?

Yes. Room and board is not a qualified education expense under IRC §117. Scholarship funds used for housing, meals, or any living expense are taxable as ordinary income in the year received, even if the scholarship was designated for room and board by the granting institution. Only tuition, mandatory enrollment fees, and required course books and supplies qualify for the exclusion.

How do I report a taxable scholarship on my tax return?

If your school or employer issued a W-2 showing taxable scholarship in Box 1, report it on Form 1040 Line 1a. If the taxable amount was not reported on a W-2, report it on Schedule 1 (Form 1040), Line 8r using the description "SCH." Only the taxable portion is reported. Scholarship income is not self-employment income and is not subject to self-employment tax.

Do I need to pay quarterly estimated taxes on a scholarship?

Yes, if your taxable scholarship income causes you to owe $1,000 or more in federal tax for the year and no employer is withholding for you. Graduate students and fellowship recipients typically have no federal income tax withheld from stipend payments. Make quarterly payments using Form 1040-ES by April 15, June 16, September 15, and January 15 to avoid an underpayment penalty.

Can I claim education credits on expenses paid with a scholarship?

No. You cannot claim the American Opportunity Credit or Lifetime Learning Credit on the same tuition expenses used to exclude your scholarship from income. If your scholarship covers all tuition, you cannot also claim tuition as a basis for the education credit. If your scholarship covers only part of tuition, you may claim credits on the remaining out-of-pocket expenses. In some cases it is strategically beneficial to treat scholarship funds as taxable and preserve tuition for the AOTC.

What if I am not a degree candidate?

The entire scholarship is taxable as ordinary income. The IRC §117 exclusion applies only to degree candidates at eligible educational institutions. Professional certificates, continuing education, and non-credit courses generally do not qualify for the exclusion unless the institution grants degrees and you are enrolled as a degree-seeking student.

Are athletic scholarships taxable?

Athletic scholarships follow the same rules as other scholarships. If you are a degree candidate, amounts used for tuition and required course expenses are tax-free under IRC §117. Amounts used for room and board are taxable. Most athletic scholarships cover both, so the room and board portion is includible in income while the tuition portion is excluded.

How is a scholarship treated for international students?

Nonresident alien students file on Form 1040-NR and may be subject to a flat 14% withholding tax on scholarship income rather than the regular graduated rates. Many countries have tax treaties with the United States that reduce or eliminate this tax for their citizens. Check IRS Publication 901 for treaty benefits by country. If too much was withheld due to treaty benefits, file Form 1040-NR to claim a refund. This calculator uses resident-alien rules and is not appropriate for nonresident alien filers.

What course expenses count as required books and supplies?

Books and supplies are excluded from income only if they are required for all students in the course - listed in the official course syllabus as required, not optional. A required textbook qualifies. A laptop required by the institution for all enrolled students qualifies. Software or equipment purchased for personal convenience, even if helpful for coursework, generally does not qualify unless the course explicitly requires that specific item for every student.

Sources

IRS Tax Topic 421 — Scholarships, Fellowship Grants, and Other Grants
IRS Publication 970 — Tax Benefits for Education
IRS — Tax Year 2025 Inflation Adjustments (Rev. Proc. 2024-40)
IRS Schedule 1 (Form 1040) — Additional Income and Adjustments
IRC §117 — Qualified Scholarships (Exclusion from Gross Income)
IRC §127 — Educational Assistance Programs (Employer-Provided, separate rule)
IRC §25A — American Opportunity and Lifetime Learning Credits
IRC §1441 — Withholding of Tax on Nonresident Aliens

Scholarship Tax Calculator

Scholarship Tax Quick Facts

When Scholarships Are Tax-Free vs Taxable

Step 1: Determine degree candidate status

Step 2: Separate service compensation from non-service awards

Step 3: Match non-service amounts against qualified expenses

Step 4: Apply 2025 federal tax brackets

Real-World Scenario

When This Calculator Does Not Apply

What To Do Next

Frequently Asked Questions

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