IRC §117 · Graduate Students · TA/RA Stipends · Education Credits
A complete guide to the IRC §117 exclusion for scholarships and fellowships. Covers the qualified expense rules, TA and RA stipend taxation, how to calculate your taxable amount, quarterly estimated payment requirements, and the AOTC coordination trap.
Use the free calculator to find your taxable scholarship amount and estimated federal tax in seconds.
Calculate Scholarship Tax →Scholarships used for tuition, required fees, and required course books and supplies are not taxable if you are a degree candidate at an eligible institution (IRC §117). Scholarship funds used for room and board, travel, or personal expenses are taxable as ordinary income. Teaching and research assistant stipends paid for services are always taxable regardless of spending. Non-degree recipients owe tax on the full amount. Taxable scholarship is ordinary income - reported on Schedule 1, Line 8r or Form 1040 Line 1a if on a W-2.
IRC §117 creates an exclusion from gross income for "qualified scholarships" - scholarship or fellowship amounts used for qualified tuition and related expenses. Understanding what qualifies is the key to determining how much of your award is taxable.
The clearest category is tuition and fees required to enroll at or attend the educational institution. If your scholarship pays the bill the registrar sends for tuition, that amount is excluded. The same applies to required enrollment fees - charges the institution requires for attendance, not optional services fees.
Books, fees, and supplies required for courses are also excludable - but only if they are required for all students in the course. A textbook listed in the official course syllabus as required qualifies. A "recommended" supplemental reading does not. A laptop required by the institution for every enrolled student qualifies. A computer you purchase for personal convenience does not, even if you use it for coursework.
This is where most scholarship recipients get surprised. The statute explicitly excludes room and board from the definition of qualified expenses. Scholarship funds used for housing, meals, utilities, transportation, or any personal expense are taxable as ordinary income in the year received. The fact that your scholarship award letter says "for room and board" does not change the tax treatment. The IRS looks at what the funds were actually used for, not how they were labeled.
Travel is also taxable. Research stipends that include a travel component are taxable on the travel portion. Equipment purchased for personal use - a camera for a photography class you chose, for example - is taxable.
| Expense Type | Tax Treatment | Condition |
|---|---|---|
| Tuition | Tax-free (excluded) | Required for enrollment; degree candidate |
| Mandatory enrollment fees | Tax-free (excluded) | Required for all students; degree candidate |
| Required course textbooks | Tax-free (excluded) | Listed as required in course syllabus |
| Required lab supplies or materials | Tax-free (excluded) | Required for all students in the course |
| Room and board | Taxable | Always - no exception |
| Travel and transportation | Taxable | Always - no exception |
| Optional equipment or supplies | Taxable | Not required for all students |
| Research expenses (not required course supply) | Taxable | Discretionary research costs |
| Stipend paid for services (TA/RA) | Taxable | Always - regardless of spending |
Use this four-step process to calculate the taxable portion of your scholarship or fellowship.
Separate any amount received as payment for required services from the rest. TA stipends, RA compensation, or any pay for work you perform as a condition of the scholarship go in the "service" bucket. These are always 100% taxable. The remaining amount - fellowship grants, merit awards, athletic scholarships - goes in the "non-service" bucket and may qualify for the exclusion.
Add up the actual amounts paid for tuition and required enrollment fees, plus the actual amounts paid for required course books and supplies. These are your qualified expenses. Do not estimate. Use actual amounts from your tuition bill and receipts.
The excluded amount is the lesser of your non-service scholarship and your qualified education expenses. If your non-service scholarship is $12,000 and your qualified expenses are $10,000, you exclude $10,000 and the remaining $2,000 is taxable. If your non-service scholarship is $8,000 and your qualified expenses are $10,000, you exclude the entire $8,000 - your scholarship is fully tax-free on the non-service side.
Your total taxable scholarship income is the service portion plus any non-service excess over qualified expenses. This amount is included in your gross income and taxed at your ordinary federal income tax rate.
The fellowship precisely covers qualified expenses - no excess is taxable. The entire TA stipend is taxable. This is a common outcome for PhD students whose tuition waiver and fellowship cover exactly the cost of attending, while the TA stipend is pure compensation for work performed.
Graduate students face the most complex scholarship tax situations because they typically receive a mix of service compensation and fellowship funds, often from the same department on the same payment schedule.
If you are required to teach sections, grade papers, run labs, or perform research as a condition of receiving your stipend, that compensation is fully taxable as ordinary income. It does not matter whether the stipend is called a "fellowship," a "scholarship," or a "grant" in your award letter. If you performed services to earn it, the IRS treats it as wages. Your department may or may not issue a W-2. If a W-2 is issued, the taxable stipend appears in Box 1. If no W-2 is issued, you still must report it on Schedule 1 (Form 1040), Line 8r.
Dissertation completion fellowships, research grants with no required teaching, and merit-based awards that carry no service obligation may qualify for the IRC §117 exclusion to the extent they cover tuition and required course expenses. Many doctoral students in their later years receive a fellowship with no service requirement to allow them to focus on dissertation research. If that fellowship covers tuition and fees, it is tax-free.
No federal income tax is automatically withheld from stipend or fellowship payments. Most universities do not treat stipends as W-2 wages for withholding purposes - they pay the gross amount and leave tax compliance to the student. If your taxable stipend income will cause you to owe $1,000 or more in federal tax for the year, the IRS expects quarterly estimated payments. Use Form 1040-ES to calculate and pay each quarter.
The 2025 estimated tax due dates are April 15, June 16, September 15, and January 15, 2026. A PhD student with a $20,000 taxable TA stipend and no other income owes roughly $600 in federal tax for 2025 (after the $15,000 standard deduction). That falls below the $1,000 quarterly payment threshold, so no penalty arises. But a student with $30,000 in taxable stipend income and $15,000 in wages owes substantially more and must pay quarterly.
Where taxable scholarship income goes on your tax return depends on whether your institution issued a W-2.
Some universities issue Form W-2 for TA or RA compensation, treating it as employment income. If your taxable stipend appears in Box 1 of a W-2, report it on Form 1040, Line 1a - the same line as other wages. Any federal income tax withheld in Box 2 goes on Form 1040, Line 25a.
Taxable scholarship income not reported on a W-2 goes on Schedule 1 (Form 1040), Line 8r. Write "SCH" in the description column and enter the taxable amount. This line covers taxable scholarship and fellowship income that was not included in wages on a W-2. The total from Schedule 1 flows to Form 1040, Line 8.
No. Scholarship and fellowship income - even taxable TA or RA stipends - is not net earnings from self-employment. You are not running a trade or business when you serve as a teaching assistant. No Schedule SE and no 15.3% self-employment tax applies. The income is taxed at your ordinary income rate only.
This is the most strategically complex area of scholarship taxation. The general rule: you cannot claim an education credit on expenses already used to exclude scholarship income from tax. This is the "double benefit" prohibition - you cannot get both an exclusion and a credit on the same tuition dollar.
If your $15,000 scholarship covers $15,000 in tuition, you exclude $15,000 from income. Your net out-of-pocket tuition expense is $0. You have no tuition basis on which to claim the AOTC or LLC, even though technically you "paid" tuition.
If your $15,000 scholarship covers $12,000 in tuition and $3,000 in room and board (with $3,000 taxable), you exclude $12,000 from income. If total tuition was $14,000, you have $2,000 in out-of-pocket tuition ($14,000 minus $12,000 excluded). You may claim education credits on that $2,000.
In some cases, it benefits you to voluntarily treat more scholarship income as taxable in order to preserve tuition for the AOTC. The AOTC is worth up to $2,500 per year (and $1,000 is refundable). If you are in the 12% bracket, electing to treat $8,000 of scholarship as taxable costs you $960 in additional tax ($8,000 × 12%) but preserves $8,000 in tuition for the AOTC - potentially worth $2,000 in credit. Net benefit: $1,040. The math works when the credit value exceeds the additional tax. Use the Scholarship Tax Calculator to model both scenarios.
At LMN Tax Inc., we see two recurring scholarship tax errors every filing season. The first is graduate students who do not file because they assume scholarship income is always tax-free. A student with a $25,000 TA stipend and no tuition waiver has $10,000 in taxable income after the standard deduction and owes approximately $1,000 in federal tax. Not filing means missing the filing requirement and accruing failure-to-file penalties.
The second is the AOTC double-dip attempt. A parent calls us saying their college-age child has a full-ride scholarship and wants to claim $2,500 in education credits. When we review the return, the scholarship covers 100% of tuition. There is no out-of-pocket tuition expense to support the credit. The IRS looks at net qualified expenses after tax-free scholarship - not gross tuition billed. The credit is disallowed. In that situation, the student may benefit from a partial voluntary taxable election, but the calculation has to be done deliberately - not by accident on the return.
The scholarship narrowly exceeds qualified expenses by $200. That $200 is technically taxable, but combined with part-time wages the total income remains below the standard deduction. No federal tax is owed. Filing is optional unless another rule applies (such as having self-employment income).
The tuition waiver is entirely tax-free. The housing stipend is entirely taxable - but at $9,600, it falls below the $15,000 standard deduction, so no federal tax is owed if the student has no other income. However, the student must still file if required (for example, if they had any self-employment income), and the $9,600 must be reported on Schedule 1, Line 8r.
Electing to treat $4,000 of scholarship as taxable costs $480 in additional federal tax but generates $2,500 in AOTC credit - a net benefit of $2,020. This election makes sense for undergraduates in their first four years who qualify for the full AOTC and are in the 10% or 12% bracket. The calculation does not work at higher income levels where the AOTC phases out or is unavailable.
Use the Scholarship Tax Calculator to enter your specific award details, qualified expenses, and other income. The calculator applies the IRC §117 rules, separates service and non-service amounts, and shows your estimated federal tax and whether quarterly payments are needed.
Graduate students with taxable TA or fellowship income typically need quarterly estimated payments. Use the Quarterly Tax Calculator to determine the right payment amount and due dates. If you missed prior quarters, use the Estimated Tax Penalty Calculator to estimate any underpayment penalty.
Many college students and graduate students filing for the first time are unsure whether they must file. Use the Do I Need to File Calculator to check your filing requirement based on your total income and dependency status.