does a phd scholarship count as income

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Taxes for Grads: Do Scholarships Count as Taxable Income?

College scholarships provide significant help to students. But, do scholarships count as taxable income? It depends on how they’re used.

Are scholarships taxable?

When are scholarships not taxed, what are qualified educational expenses, when are scholarships considered taxable income, taxable scholarship funds, taxable stipend scholarships, scholarships vs. grants, what tax credits are available to pay for higher education, american opportunity credit, lifetime learning credit, how to maximize your scholarships and tax credits, tax deduction for student loan interest, how can i avoid paying taxes on scholarships.

Key Takeaways

Scholarships that pay for qualified educational expenses at qualified educational institutions generally don’t count as taxable income.
Scholarships are tax-free only if the student is a degree-seeking candidate, attends a qualified educational institution, and the funds are used for qualified education expenses.
Scholarship funds received in excess of your qualified educational expenses may be taxable and might need to be reported in your taxable income.

Typically, scholarships that pay for qualified educational costs at eligible educational institutions aren’t considered taxable income. The same applies to grants received to pay for specific schooling costs. In short, whether scholarships are taxable depends on how much you receive and how you spend the funds. In fact, some scholarships can be at least partially taxable.

The IRS has specific conditions for a scholarship not to be taxed. A scholarship is tax-free only if:

You are a degree-seeking candidate
Attend a qualified educational institution
It doesn’t exceed your qualified education expenses
It isn’t designated for other non-qualified purposes (such as room and board)
It doesn’t represent payment for work or services you’ve performed

The IRS defines a candidate for a degree as someone who either attends primary or secondary school (K-12) or attends college to pursue a degree. Or you can attend an educational institution that:

Provides a program which can be used as full and acceptable course credit toward a bachelor's or higher degree, or offers a training preparation program for students seeking gainful employment in a recognized occupation; and
Has received a nationally recognized accreditation status and is authorized under federal or state law to provide a program of study.

To avoid a scholarship being subject to taxation, you’ll need to spend the funds on qualified educational expenses. Generally, this means tuition and fees required to enroll or attend the eligible educational institution. But it can also include costs such as course-related expenses like fees, books, supplies, and equipment required for courses at the institution.

The key requirement for having scholarships cover these course-related expenses tax-free, is that they must be required of all students in your course. They can’t be optional expenses you elect to pay that aren’t required to satisfy the requirements of the course or educational institution.

You might have some of your scholarship or grant count as taxable income under certain circumstances.

Some scholarship funds are subject to taxation . If you have scholarship money left over after covering your qualified education expenses, you'll need to include that amount as part of your gross taxable income. That means scholarship money counts as income when calculating your tax liability when used to pay for:

Room or board
And other non-qualified expenses (including school supplies not listed as required in your program).

If you have money left over after covering your qualified education expenses and use it on other costs, these funds generally count as taxable income. For example, if you use your scholarship funds for optional reading assignments that don’t go toward satisfying course requirements and aren’t required of every student, they would be subject to taxation.

In some cases, a scholarship is really more of a stipend, providing compensation for services while you’re in school or for services you’ll provide in the future. If, for example:

You receive a $5,000 scholarship with $1,500 of it designated to pay for your teaching services.
The $1,500 typically counts toward your taxable income for the year.
The remaining $3,500 is usually not taxable, as long as you're a degree student at a qualifying institution and the money is used for qualified education expenses.

If you receive a scholarship with the condition that you provide services in the future, you’ll typically need to count the scholarship as income in the year you receive it. Payment for services at a military academy also counts toward your taxable income.

If you receive scholarship funds that exceed your qualifying educational expenses, the amount above these necessary costs is subject to taxation. Likewise, if you receive a scholarship that you use to pay for room and board, books or supplies that aren't required, these funds are generally subject to taxation. Commonly, schools offer scholarships to worthy students, essentially counting as a reduction in the cost of attendance rather than funds given from a third-party.

Scholarships are financial awards often given to students who meet certain need-based criteria or merit-based achievements based on their academic, athletic or extracurricular performance, or on other areas of interest like field of study, hobbies and more. Scholarships aren't like student loans, meaning they don't need to be repaid.

Grants are a form of financial aid that don’t require repayment. Generally, grants are awarded based solely on financial need. One common example is the Pell Grant, which is awarded solely on the difference between the expected cost and family contribution amounts.

Depending on how the student uses scholarship funds, they are typically not considered taxable income. Grants are usually awarded by federal and state governments and are generally not taxable if used for paying qualified expenses to attend an eligible educational institution while pursuing a degree.

TurboTax Tip: Tax credits such as the American Opportunity Credit and the Lifetime Learning Credit can be used to reduce the cost of pursuing post-secondary education.

Scholarships and grants aren’t the only ways to get financial assistance to pay for higher education. The tax code also has two educational tax credits geared toward lowering the cost of pursuing post-secondary education.

The American Opportunity Credit allows students or their parents an opportunity to reduce the cost of attending college through claiming qualifying education expenses as a tax credit on their federal income taxes. The credit reduces the tax you owe on a dollar-for-dollar basis rather than just reducing the amount of income subject to tax as a deduction would.

To claim this education tax credit , the student must be at least a half-time student who hasn’t completed the first four years of college and is working toward a degree. In addition to required tuition and fees, the credit applies to other expenses like books, supplies and equipment, but not room, board, transportation expenses or medical insurance. The credit is equal to 100% of the first $2,000 of qualifying expenses plus 25% of the expenses in excess of $2,000. The maximum credit per student per year is $2,500.

Whether you’re pursuing a college degree, higher education coursework independent of a degree or other educational activities to develop your career, another tax credit to consider is the Lifetime Learning Credit . Like the American Opportunity Credit, this credit also reduces your tax bill on a dollar-for-dollar basis for a portion of the tuition, fees and other qualifying expenses you pay for yourself, your spouse or a dependent to enroll in qualifying coursework. However, this credit doesn’t require you or your dependent to be taking this coursework to satisfy the requirements of a degree.

The Lifetime Learning Credit is equal to 20% of the first $10,000 of spending for a maximum of $2,000.

Another distinction is that you can’t double dip with these two educational credits. That means you can’t claim both the Lifetime Learning Credit and the American Opportunity Credit in the same year for the same student. You need to choose between them.

The American Opportunity Credit is available for each qualifying person on a tax return, while only one Lifetime Learning Credit can be claimed on each tax return.

The IRS has provided some helpful guidance on how to maximize your scholarships and tax credits, delivering you the most savings possible for your situation. One tax optimization strategy works by considering some of your scholarship money as taxable income by using it for living expenses rather than applying it toward your tuition expenses. This can allow for some of your tuition expenses to be eligible for an education credit that otherwise would have been paid by the tax-free scholarship money. In some cases, you might be better off excluding all of the scholarship from your taxable income by applying it only toward tuition expenses. In others, it might make sense to claim some as taxable income and use the tax credits to lower your tax bill.

For example, if you have a grant or scholarship that fully covers all of your tuition, fees, and books, then you can't claim the American Opportunity Credit because you didn't actually pay for qualifying expenses. If, instead, you claim some of the grant or scholarship as income and don’t use it for your eligible expenses, this then leaves you with some qualified expenses to pay and gives you the ability to claim the tax credit. Since up to $1,000 of the American Opportunity Credit is refundable, you can take part of a scholarship and choose to make it taxable income. Then, you can have part of the American Opportunity Credit pay the tax and receive up to $1,000 as a refund without ever having paid any taxes.

Another useful tax deduction you may be able to claim comes from the student loan interest deduction. If you used student loans to finance all or part of your college education, the tax code provides the ability for many borrowers to deduct the interest paid on these student loans.

For 2023, you can deduct the student loan interest paid if your modified adjusted gross income (MAGI) is below $90,000 as a single filer or $185,000 if you file a joint return. The ability to claim the deduction begins to phase out at $75,000 for single filers and $155,000 for joint filers.

For scholarships to be completely tax-free, the money you receive has to go toward paying qualified educational expenses at qualified educational institutions. In some cases, scholarship funds can exceed this amount. Scholarship funds that go toward certain non-qualified expenses like room and board are typically taxable income.

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How to Prepare Your Grad Student Tax Return (Tax Year 2023)

January 24, 2019 by Emily

It’s common for funded graduate students to be a bit intimidated by preparing their own tax returns, particularly if they are inexperienced in doing so. The sources of PhD student funding, namely fellowship stipends and the scholarships or waivers that pay tuition and fees, are rather unusual , so most people and even most professional tax preparers don’t have any experience with them. The strategies that apply for undergraduate-level taxes are pretty different from those that apply for graduate-level taxes. But learning how to prepare your grad student tax return isn’t actually difficult, nor are the resulting steps complicated. There’s no reason to be intimidated! This post covers the essential points you need to know to prepare your grad student tax return , whether you do it manually, with tax software, or with the help of another person.

This post is for tax year 2023. This post only covers federal tax due for graduate students in the United States who are citizens, permanent residents, or residents for tax purposes; you may have additional state and local tax due. I am detailing only the aspects of preparing your grad student tax return that are specific to higher education; I am not covering more general tax information that applies to the population at large.

This article is for educational purposes only and does not constitute tax, legal, or financial advice advice. It was last updated on 2/12/2024. For more tax content, visit the Personal Finance for PhDs Tax Center .

Table of Contents (Links)

Preliminary remarks, collect all your income sources, categorize your income, decide which education tax benefit(s) to use on your grad student tax return, fill out your grad student tax return, other education tax benefits, if you were under age 24.

This post is a step-by-step guide on how to prepare your grad student tax return. I want to clear up some confusion right up front so that you can work your way through the guide without becoming sidetracked.

All of your income is potentially taxable. The purpose of your tax return is to show that you don’t have to pay tax on all of it. What graduate students don’t often realize is that they have income sources aside from the one(s) that hits their bank accounts or is reported on an official tax document, and they need to deal with those incomes on their tax returns.

You have your stipend/salary that serves as your take-home pay; this is potentially taxable, even if you don’t receive an official tax form about it and you didn’t have any taxes withheld. In fact, I’ll say you’re very likely to end up owing tax on it unless it’s quite low and/or you have a lot of tax deductions and/or credits.

You also have another kind of potentially taxable income if you are funded: the money that pays your tuition, fees, and other education expenses. Your university might refer to this as scholarships, waivers, remissions, etc. Even if this money never passes through your personal bank account, it does pass through your name via your student account, which makes it potentially taxable to you as an individual. There is a very high chance you can use an education tax benefit to reduce your taxable income and/or reduce your tax due, but you have to sit down and do the arithmetic on it, not just assume that you won’t owe any tax on it. (In fact, doing the arithmetic may very well help you pay even less tax than if you ignored it!) This guide shows you exactly how to do that.

Qualified Education Expenses

The definition of a QEE changes slightly for each tax benefit. From Publication 970 p. 4:

“Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses aren’t necessarily allowed for each benefit.”

Tuition at an eligible education institution is a QEE for both tax benefits (although to make awarded income tax-free you have to be a degree candidate). “Required fees” are QEEs for making awarded income tax-free. The Lifetime Learning Credit uses the wording “the fees and expenses [that] must be paid to the institution for enrollment or attendance” to define a QEE. Other fees and expenses beyond tuition may be QEEs; you should refer to the definition of a QEE with respect to each benefit.

If you received a 1098-T from your university, Box 1 will contain the sum of the payments for your the “qualified tuition and related expenses” that were processed by the office at your university that prepared the form. You may have additional QEEs not reported on the Form 1098-T , because the qualified tuition and related expenses on Form 1098-T do not include “charges and fees for room, board, insurance, medical expenses (including student health fees), transportation, and similar personal, living, or family expenses” ( Form 1098-T Instructions , p. 2)

Make Awarded Income Tax-Free

The awarded income that you receive can directly cancel against your QEEs to become tax-free. For example, if the tuition that you are charged and the scholarship or tuition reduction that pays it are exactly the same amount, they net to zero and you won’t be taxed on that portion of your awarded income. In fact, you don’t even have to show the IRS this calculation; you only have to report the portion of your awarded income that exceeds your QEEs.

The definition of a QEE to make awarded income tax-free is (excerpted from Publication 970 Chapter 1 p. 6):

Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:

Tuition and fees required to enroll at or attend an eligible educational institution; and
Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that don’t qualify. Qualified education expenses don’t include the cost of:

Room and board,
Clerical help, or
Equipment and other expenses that aren’t required for enrollment in or attendance at an eligible educational institution. “

Are you unsure whether one of your expenses is a “qualified education expense” to net against awarded income? In my tax workshop, I present the common higher education-related expenses that graduate students incur and tell you whether or not they are QEEs under each of the education tax benefits.

Lifetime Learning Credit

The Lifetime Learning Credit reduces your tax burden and may be beneficial to apply if 1) your QEEs exceed your awarded income and/or 2) a 20% credit is more valuable to you than a deduction.

The Lifetime Learning Credit is a 20% credit ; that means that if you use $1,000 in QEE expenses for the Lifetime Learning Credit, your tax due will be reduced by $200. There is a $10,000 limit on QEEs that can be used for the Lifetime Learning Credit , so the maximum benefit is $2,000 even if you have additional QEEs.

The modified adjust gross income phase-out for this deduction begins at $80,000 for a single person and $160,000 for a married couple filing jointly.

The definition of a QEE for the Lifetime Learning Credit is (excerpted from Publication 970 Chapter 3 p. 24, 28):

“Qualified Education Expenses

For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills.

Related expenses. Student activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance.

Expenses That Don’t Qualify

Qualified education expenses don’t include amounts paid for:

Medical expenses (including student health fees);
Room and board;
Transportation; or
Similar personal, living, or family expenses.

This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. “

If you take the Lifetime Learning Credit, you must fill out and file Form 8863.

The Numbers You Need for Your Tax Return

Once you have decided how you would like to use your QEEs, you should bring a few numbers with you to enter into your federal tax return:

Your total amount of employee income (W-2 pay with respect to your grad student income),
Your net awarded income (after applying your QEEs to reduce it),
The amount of your Lifetime Learning Credit (maximum $2,000) from Form 8863, and
The amount of income tax you already paid, whether through withholding or estimated tax.

You now have an idea of the actions to take and decisions to make regarding your grad student tax return. I know it can seem overwhelming! I don’t want you to spend hours and hours feeling frustrated paging through IRS documentation or wrestling with tax software.

Commit a couple hours to taking my tax return workshop, feel confident and supported, and emerge with an accurate and minimized tax return!

With respect to your taxable grad student income, Lifetime Learning Credit, and tax already paid, how to report them on your tax return is very straightforward. Of course, you will fill out the rest of your tax return by following the form instructions; this section only relates to the grad student aspects of your return.

Report Your Income

Write your employee income (reported on your Form W-2) on Form 1040 Line 1a.

Write your taxable awarded income on Form 1040 Schedule 1 Line 8r. (This dedicated line is new as of 2022!)

Further reading: Where to Report Your PhD Trainee Income on Your Tax Return

Report Your Lifetime Learning Credit

Report your Lifetime Learning Credit on Line 3 of Form 1040 Schedule 3 ; you will also file Form 8863. The amount of this credit will directly reduce your tax due.

Report Your Tax Already Paid

If you received a Form W-2 and/or Form 1099 for part or all of your grad student income, you will enter the amount of federal tax that was withheld from your income in Line 25 of Form 1040 . There are different parts of the line depending on which form was used.

Further reading: The Complete Guide to Quarterly Estimated Tax for Fellowship Recipients

If you paid quarterly estimated tax on your fellowship income, report the total of the estimated tax payments you made in Line 26 of Form 1040 .

I have omitted from detailed discussion two education tax benefits that you may be familiar with from past experiences preparing your tax return.

American Opportunity Tax Credit

The American Opportunity Tax Credit is typically used during the undergraduate years only. It can be claimed in only 4 tax years and not in any tax year after the one in which you finish your first four years of postsecondary education. Therefore, if you graduated from college in 2023 (in four years) and you (or your parents) claimed the American Opportunity Tax Credit in no more than 3 previous tax years (e.g., freshman spring/sophomore fall, sophomore spring/junior fall, and junior spring/senior fall but not freshman fall), you may be eligible to claim it in 2023.

The American Opportunity Tax Credit is the most valuable education tax benefit available, so if you are eligible for it, you will almost certainly want to use it to the greatest degree you can. It is a 100% credit on up to $2,000 of QEEs and a 25% credit on up to $2,000 of QEEs.

The definition of a QEE for the American Opportunity Tax Credit is distinct from the definition for other education tax benefits.

If you claim the American Opportunity Tax Credit, you cannot use the Lifetime Learning Credit or the Tuition and Fees Deduction. If you are considered a dependent on your parents’ tax return in 2023, you cannot claim the credit (your parents would).

To claim the American Opportunity Tax Credit, you need to fill out and file Form 8863.

Tuition and Fees Deduction

The Tuition and Fees Deduction expired at the end of 2020.

If you were age 23 or younger on December 31, 2023 and a full-time student for at least five months of the year, you may be subject to an alternative, higher tax known as the Kiddie Tax. This could be the case if your income was primary awarded income.

Further reading: Fellowship Income Can Trigger the Kiddie Tax

As a full-time student (for at least part of 5 calendar months) and under age 24, your parents (or another relative) might also be able to claim you as a dependent, though you will have to pass the ‘residency test’ and ‘support test.’

One entire module of my tax return workshop is devoted to the special tax considerations of graduate students under the age of 24. Please consider joining the workshop for much more details about the Kiddie Tax and dependency.

The most challenging aspect of this process is simply knowing the various aspects that you have to consider. The most complicated aspect is collecting and categorizing all of your income sources and education expenses.

Best of luck to you as you prepare your grad student tax return this year! If you need additional support:

Download my tax “cheat sheet”
Register for my workshop (includes live Q&As!) for only $34

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Reader Interactions

March 13, 2020 at 9:42 am

A tax situation I have seen goes like this: Graduate student applies for external funding award/grant and receives it. The amount of this award/grant is paid by check directly to the student. The conditions of the award/grant are that the student must use the money to cover research expenses – say, cost of laboratory supplies, equipment, etc. Per the fund-granting organization, the student is not to use the money to pay their own cost of living expenses or wages. How would you deal with this tax situation?

March 31, 2020 at 2:05 pm

Thanks for following up over email!

April 8, 2020 at 5:42 pm

Thank you so much for posting this. I got a number of scholarships and grants this year that showed up on my 1098 and my initial H&R block estimate for taxes owed nearly gave me a heart attack, so I’ve trying to figure out how I can change that. I am in the same situation as Emily, with a scholarship that was awarded directly to me but can only be used for research allowances. Could you share the feedback you sent Emily in an email? Thanks!

April 17, 2020 at 2:35 pm

Same situation as posted by Jessica and Emily as far as award can only be used for funding research, in shock at the amount owe in taxes. Could you also share feedback you sent on how to deal with this situation?

May 13, 2020 at 11:40 pm

I have a similar situation regarding scholarships/grant money that can only be used towards research. Could you share the response you sent to the above inquiries?

Thanks, Dorian

May 24, 2020 at 3:51 pm

I’m sorry to say I don’t have a great answer! Worst case scenario is that it’s fully taxable within your personal income.

April 20, 2020 at 3:41 pm

So I am confused about how to collect My Income. My Pay stubs totaled 39K My 1098T Box5-Box1 was 7K and my W2 was 3k. Do I report the 29k difference as income as well? Or is that already reported in Box5?

April 20, 2020 at 10:45 pm

For an in-depth exploration of definitions and methods, I suggest joining my tax workshop: https://gum.co/tax2019gradstudent

March 5, 2021 at 7:55 am

Has your stance changed on whether health insurance premiums paid directly by a fellowship are considered as qualified education expenses? Insurance is required at my university, although we do have the option to have an outside insurer. In my case, I have the university plan which is covered by a ~$3,300 fellowship. This amount is paid directly by the university. Based purely on my 1098T, this increases my tax burden by ~$600. It seems unfair I should be taxed on this. Thanks!

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Scholarship Money and Taxes

A scholarship is usually an amount a student receives to help in the pursuit of studies. The student can be either:

An undergraduate
A graduate student

Scholarship money can be any of these:

Partially taxable
Fully taxable

Tax-free income

If you’re a degree-seeking student, don’t report scholarship money spent:

For qualified education expenses
At a qualified educational institution

Qualified education expenses are:

You can’t claim expenses for:

Room and board
Clerical help
Equipment that’s not required of all students enrolled in a course
Costs not required for enrollment

Partially taxable income

Scholarship money is taxable if used for these education expenses:

Any other expense not required for enrollment

Report your taxable scholarship amount on one of these:

Form 1040, Line 7
Form 1040A, Line 7
Form 1040EZ, Line 1

If you didn’t receive a W-2 listing the taxable amount, write “SCH” and the taxable amount on the dotted line to the left of Line 7 or Line 1.

Fully taxable income

If you’re a non-degree student, include the full amount of your scholarship or fellowship in your taxable income. Do this:

Even if you didn’t receive a W-2
No matter what expenses you paid with the scholarship

Report the full amount of scholarship income on one of these:

Write “SCH” and the amount on the dotted line to the left of Line 7 or Line 1.

The full amount of the scholarship is also taxable if both of these apply:

You’re a degree-seeking student.
You use the full scholarship for nonqualified expenses.

If both apply, report the full amount of scholarship income on one of these:

Write “SCH” and the amount on the dotted line to the left of Line 7 or Line 1.

To learn more, see these at www.irs.gov:

Publication 525: Taxable and Nontaxable Income
Publication 970: Tax Benefits for Education

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Home / Resources / Articles / The ABCs of Scholarship Tax Rules

The ABCs of Scholarship Tax Rules

January 19, 2022

Good news: You just found out that your high school senior son or daughter will be receiving a sizeable scholarship at a prestigious university next fall. But what are the tax consequences?

Generally, your child won’t have to pay any tax on a scholarship that goes toward obtaining a college education. It doesn’t matter if the money is coming from the school itself or another source.

To qualify for the tax exemption, the following three requirements must be met:

The child is a degree candidate at an eligible educational institution. This is an institution with a regular faculty and curriculum and a regularly enrolled body of students.
The scholarship is used to pay for qualified expenses. This includes tuition and fees, books and related costs like supplies or equipment required for specific classes. However, it doesn’t cover room and board, travel and research costs.
The award doesn’t represent wages for teaching, research or other work.

In some cases, only a portion of the scholarship is exempt from tax. For instance, suppose your child receives a $25,000 award, where $15,000 goes to tuition and $10,000 to room and board. In this case, only $15,000 is excluded from tax. The remaining $10,000 is treated as taxable income.

For these purposes, a “degree candidate” is defined as someone who:

Attends a primary or secondary school or is pursuing a degree at a college or university, or
Attends an educational institution that 1) provides a program that’s acceptable for full credit toward a bachelor’s or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation, and 2) is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency.

Scholarships are fully taxable to the student who isn’t a degree candidate at an eligible institution. A scholarship or fellowship is also taxable if it represents compensation.

For example, suppose your child in graduate school is required to serve as a teaching assistant to qualify for a $20,000 award. In this situation, the entire amount is taxable, even if part or all of the money goes to tuition. The university will generally provide Form W-2 to the student, stating the income amount that must be reported on their federal income tax return.

What about athletic and music-performance scholarships? The rules in this area are continuing to evolve, but currently these amounts are generally exempt from tax, even if the school reasonably expects the student to participate in a particular activity. Generally, the scholarship must continue even if the recipient is injured or simply chooses not to participate.

There are, however, a few exceptions to the general rules requiring taxation of scholarships and fellowships when the student renders services in exchange.

Notably, the IRS has said that payments made through the GI Bill aren’t considered to be scholarships, so they don’t constitute taxable income. Moreover, if your child participates in the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program, the payments are generally exempt from tax if the amounts are used to pay qualified expenses.

There’s also an exception for qualified tuition reductions received by employees of an educational organization. Graduate students who receive tuition reductions or waivers in exchange for teaching or research activities need not report these benefits as income. Similarly, tuition reductions enjoyed by an educational organization’s employees or their family members are tax-free, provided the program doesn’t discriminate in favor of highly compensated employees.

Keep in mind that student loans clearly aren’t scholarships. Therefore, loans are subject to a different set of rules.

Kiddie Tax Complications

The kiddie tax may throw an extra wrinkle in the rules for taxing scholarships. Be careful to avoid adverse tax consequences.

Briefly stated, the kiddie tax applies to “unearned income” above an annual threshold that’s received by a dependent child under age 19 or a full-time student under age 24. The annual income threshold for 2022 is $2,300, up from $2,200 in 2021.

If the kiddie tax comes into play, the excess is taxed at the top tax rate of the child’s parents — not the child’s tax rate — regardless of the source of the income. Currently, the top federal tax rate on ordinary income is 37%.

Clearly, if income is received by a student for a fellowship where their services are compensated and are reported on Form W-2, the grant constitutes taxable “earned income” and doesn’t cause any kiddie tax problems. However, if a scholarship is used for purposes other than for qualified expenses, the amount is generally considered to be unearned income. This may occur, for example, if your child is awarded a scholarship for room and board.

Don’t forget to factor this into your tax calculations for the year. Also, be aware that taxable scholarships may actually increase a higher education credit.

Bottom Line

The federal tax rules for scholarship awards can be confusing. Before you start counting on your student’s apparent good fortune, you may want to meet with your professional tax advisor to determine the tax ramifications for your family.

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When Are Scholarships Taxable?

It depends on several rules

How Taxes on Scholarships Work

Money in exchange for services.

Other Factors

Frequently Asked Questions (FAQs)

Tom Werner / Getty Images

Scholarships and grants are not often taxed. That's good news when the school of your dreams is giving you some financial aid, but you could end up having to pay something to the IRS, depending on how much you receive and how you spend it. Some scholarships are at least partially taxable.

Key Takeaways

The portion of a scholarship that pays for tuition and fees isn't usually taxable, but any part that pays for room and board, books, or supplies that aren’t required for attendance can be taxable.
A portion of your scholarship would also be taxable if it's more than your qualifying educational expenses. The money that’s “left over” would be considered income subject to taxation.
The school must be on the IRS list of eligible educational institutions.
Pell Grants are exempt from taxation.

Receiving a scholarship doesn't have to mean that someone wrote you or your school a big check to cover your tuition and fees. Schools typically "erase" what you owe for the year or for the semester when they award full scholarships themselves rather than receiving the funds from a third party. You effectively attend for free.

Scholarships offered by schools are often awarded for academic excellence or to recruit student-athletes for sports programs.

When it comes to paying taxes on scholarship money, there are a few rules to review before you're in the clear.

Where Are You Going to School?

The first qualifying rule for a tax-free scholarship involves where you'll be attending school. You must use the money to go to what the IRS refers to as an “eligible educational institution."

This means that the institution’s primary purpose is to provide post-secondary education and instruction. It has one or more established curricula and an enrolled student body. It maintains a facility dedicated to teaching.

Most schools fall under this definition, so you're most likely safe in assuming that yours is eligible. One easy rule of thumb is that the school qualifies if it participates in the U.S. Department of Education’s student aid program.

Don't assume that your school isn't eligible just because it doesn't appear on the Department of Education's list, though. Contact the school to be sure.

Taking a random class or two now and then isn't sufficient for the IRS. You must be pursuing a degree. Otherwise, the scholarship is taxable income.

What Does Your Scholarship Pay For?

You must next determine how the scholarship funds will be used. The money can only be applied to “ qualified educational expenses .” Otherwise, it's taxable.

Room and board aren't qualified education expenses, so a portion of your scholarship will be taxable if it were to pay for your tuition and fees and also provide for a roof over your head and meals. The IRS takes the position that the room-and-board portion represents income to you. You're spending the money on personal needs.

Tuition money spent on required equipment, books, and supplies is tax-free. "Required" means that your school or class instructor says that you must have these items to enroll in and attend a particular class. For example, you'd have to pay taxes on a portion of the scholarship if you were to use some of that money to purchase a new laptop that isn't required, even though you might use it for schooling.

The same goes for groceries, medical expenses, and insurance premiums. These costs aren't qualified either. It's also taxable income if you use any of the money for transportation purposes.

Did You Use All of the Scholarship Money?

Let's look at another example. What if a community organization were to give you a $10,000 scholarship, but the qualified expenses at the school you want to attend were only $8,500? That $1,500 balance would become taxable income to you.

Read the fine print. Some private scholarship funding can be specifically earmarked for non-qualified expenses.

Another example is that your entire scholarship would be tax-free if you were to receive $10,000 solely for tuition and fees, which would cost you $11,500 per year. Every dime of the scholarship would therefore go to qualified expenses, but you'd have to come up with $1,500 out of pocket for the remaining balance.

What About Grants?

Grants are intended to pay for a specific area of research or study. Pell Grants are an exception. They're need-based, helping students whose economic situation is so disadvantaged that they would not be able to attend college without this financial help. These sources of funding are not considered income, but they're taxable under some circumstances.

Why you received the scholarship or grant is another critical factor. Was it because you were your high school’s star quarterback? That’s fine with the IRS. You can accept the money tax-free. The same holds true if you maintained such excellent grades that someone wanted to reward you for that with an academic scholarship.

If you receive money in exchange for providing services such as teaching, research, or even helping out in the admissions office, the money becomes taxable—at least the portion related to payment for your services does. You're working for it just as you would for wages. In fact, you might even receive a Form W-2 for the taxable portion related to services rendered.

The thing to watch out for here is whether you're awarded the scholarship only because you agree to do something in exchange for the money. Again, read the fine print. The entirety of most scholarships is not typically given in exchange for services rendered. One might offer an additional $1,500 or $2,000 if you perform a certain service or job.

Some grants are more likely to assert this "work for it" condition.

This rule applies even if you don't have to begin performing the service until after you graduate. It could be taxable income if you'll eventually work for it. Your labor doesn't necessarily have to occur while you're enrolled.

Other Factors To Know About Taxes and Scholarships

Some factors won't automatically make your scholarship taxable, at least not by themselves and if you meet the other rules.

For example, it doesn't matter what entity or individual gives you the money. In fact, your grandparent can even avoid paying gift tax if they give the money directly to your school on your behalf.

Scholarships awarded by the Armed Forces Health Professions Scholarship and Financial Assistance Program or the National Health Service Corps Scholarship Program are exempt from the rule regarding services provided by you in exchange for the money.

Many student work-learning-service programs under Section 448(e) of the Higher Education Act of 1965 and Pell Grants are exempt from taxation.

Payments received under the G.I. Bill aren't considered to be scholarships or taxable income, either. You won't have to pay taxes on your scholarship if you attend school in another country. You must meet all the other criteria, however.

Student loans aren't taxable and do not constitute income. You have to pay that money back.

Do college students have to file tax returns?

Attending school is a non-issue when it comes to filing a tax return. The requirement to file depends on how much income you had during the tax year. You must typically file a return if you earned more than the standard deduction for your filing status, but special rules apply to those who can be claimed as dependents on someone else’s tax return.

Who has to claim scholarship money as income on their tax returns?

The student must typically claim the portion of the scholarship that’s not tax-free on their own tax return, even if they’re dependents on their parents’ tax returns.

IRS. " What Is an Eligible Educational Institution? "

IRS. " Topic No. 421 Scholarships, Fellow Grants, and Other Grants ."

IRS. " Qualified Education Expenses ."

UNC School of Medicine. " Armed Forces Scholarships ."

Health Resources and Service Information. " NHSC Scholarship Program Overview. "

GovInfo.gov. " Higher Education Act of 1965 ."

U.S. Department of Veterans Affairs. " About GI Bill Benefits ."

IRS. " Who Should File a Tax Return ."

IRS. " Publication 970, Tax Benefits for Education ."

Graduate Education

Office of graduate and postdoctoral education, taxes 101 for graduate students.

Mar 23, 2023

“Is my fellowship taxed?” “How do I determine my residency for tax purposes?” These are just a couple of the important questions answered in Taxes 101 for Graduate Students.

Resident tax gurus James Black, senior academic professional in the Office of Graduate Education; Jessica Dunn, international tax compliance specialist in Global Human Resources; Rob Sullivan, business analyst in the Bursar’s Office, teamed up to answer graduate students’ most commonly asked questions when it comes to doing taxes.

Staff are not professional tax accountants or preparers. The following is for informational use only.

What are income taxes? “Essentially, when you earn income, the government (both the state and federal government) is generally owed a tax on that income. It’s called income tax,” said James Black, senior academic professional in the Office of Graduate Education. “Basically, if taxes withheld are greater than the taxes you owe, you’re going to get a refund back. If your taxes withheld are less than your taxes owed, then you’re going to have a tax bill, and you will have to pay some money through that tax return process.”

In general, how does it work? “As you get a paycheck, there’s a portion of your paycheck that’s held back and prepaid to the state and federal government, in terms of your income tax,” said Black. “That’s really important when it comes time to file your tax return when you’re reporting how much income you have and how much tax you may have had withheld.”

What is the process? “Your income can be reported in a number of ways based on the type of income that it is,” said Black. “After that calendar year concludes is when you would prepare and file your income tax return. You collect all of that paperwork; you report all of your income to the government and any other relevant financial information that may affect how much money you owe in taxes. Then, there’s a math problem that determines whether you’re going to get a refund through that tax return process, or you may have a tax bill where you need to pay some money to finish paying your taxes that are owed on that money throughout the year.”

What are common tax forms for graduate students?

W-2: “For W-2 pay, that’s where payroll is going to report your income that taxes may have been withheld on,” said Black. “If you’re hired as a GRA or GTA and you’re employed on campus, you will generally be paid through payroll, and you will be issued a W-2.”

099: “Interest income, or other types of income you may make, will generally be reported on a 1099 form, and there are many different flavors of a 1099 based on the type of income that it is,” said Black. “In general, on a 1099, no tax is withheld. If that is taxable income, you need to keep track of that. Keep in mind that when you go to file your tax return, you will be required to pay that tax at that time.”

1042-S: “For scholarship and fellowship income for our international students, generally, there is going to be a 1042-S that is produced for you to report that income,” said Black.

In addition, Dunn explained that people who are paid through payroll for a job but have a tax treaty will also get a 1042-S. “That [form] can also be necessary if you received money back from the bursar, meaning all of your tuition was paid and there was still some money left over, so they gave you a check or they deposited it into your account,” said Dunn. “Also, if you received any prizes or awards that didn’t go directly toward your tuition, but you just got the money to do with as you wanted, you would receive a 1042-S.”

How do I determine my residency status for tax purposes? “If you are international, meaning you have a foreign passport, the first thing you are going to want to do is figure out whether you are considered a resident or nonresident for tax purposes, and that will determine how you complete your taxes,” said Dunn.

According to Dunn, “The easiest way to determine [if you are a resident or nonresident] is to use GLACIER. If you are earning income from Georgia Tech, you have likely already done this, and you have put in your immigration information and determined whether you are a resident or nonresident,” said Dunn. “The thing to keep in mind is this can change based on how long you have been here, so if you have been at Tech for a while, you may want to go back and double-check that before you do anything.”

Do I need to file income taxes if I made less than a certain amount? “The process is different if you earned money or if you didn’t,” said Dunn. “For U.S. citizens, you really don’t have to do anything if you didn’t earn money.”

“The same is not true for nonresidents. Even if you earned nothing in the U.S. in 2022, there’s still one form that you’re supposed to do, and that is the 8843,” said Dunn. “It’s very simple; it doesn’t have anything to do with numbers. It’s really just to say, ‘Hi, I’m here in the U.S., and I’m a nonresident. Please don’t tax my worldwide income.’ Meaning, if you have any kind of income in another country, it will keep the U.S. from bothering that income. That’s important to do.”

Black explained that U.S.-based taxpayers who made less than $12,950 (single return) or $25,900 (joint return) don’t have to file a tax return. “We always recommend that you do file a tax return because if you did make income, and you had taxes withheld, more than likely you’re going to get a refund,” said Black. “If you don’t want to bother with your tax return, that’s fine, but you may be leaving some money out there in the government’s checking account that you may be entitled to, so make sure that you file your taxes if you made any income.”

What are tax deductions and credits? “You may have heard of ‘income tax reductions,’” said Black. “Essentially, that will reduce your taxable income. A tax credit results in a dollar-for-dollar reduction in the taxes that you pay. If you owe $2,000 and you got a $1,000 tax credit, then you would end up owing $1,000. The Bursar’s website has some information about common tax credits for educational-related tax credits at www.bursar.gatech.edu/content/tax-credits .”

Will my fellowship be taxed? “Many fellowships are going to be providing you with income that is going to be taxed,” said Black. “There can also be deductions to offset a lot of that income. I will refer you to the website: http://www.pfforphds.com . There’s information there about some tax situations related to fellowships where you will want to dig into that because you could potentially have a pretty big tax bill if you weren’t planning for that while you were receiving your fellowship income. If you had a stipend paid through the Bursar’s office because you’re on a fellowship, that could be taxed, and you might have a big tax bill to pay.”

How do I file my tax return (U.S. citizens and residents)? “There are many different versions of tax prep software out there that will walk you through all of the different deductions and credits,” said Black. “In general, the advice we give to U.S. citizens and residents for tax purposes is to trust the software. Be an intelligent consumer of the tax prep software. Make sure you trust the folks that are going to be preparing your taxes. They’re going to get a lot of sensitive information, like your social security number, and you will want to make sure that you’re working with somebody that is not trying to scam you. Be an intelligent consumer and trust the software that’s out there to help you file your taxes.”

How do I file my tax return (nonresidents)? “We provide nonresident alien students a program called Sprintax,” said Dunn. “You will probably see ads for tax preparation software, but the important thing to remember is that if you’re a nonresident, most of those that you see advertised will not work for you. They’re not designed for nonresidents. They will do your taxes incorrectly. I see a lot of people using them because it gives you a bigger refund, and that seems really great. The IRS may come back later and request that you pay that. It’s really important to use the correct program. Georgia Tech does provide Sprintax. There is an e-form in iStart, and you can go in and request that.”

Do I have to pay a fee to file my taxes? “If your income is below a certain threshold, you should be able to file your taxes for free,” said Black. “Here’s a URL for the IRS website: www.irs.gov/filing/free-file-do-your-federal-taxes-for-free. There’s more information on the IRS website about how to access those free filing taxes for your federal income taxes. When you file your state taxes, generally, there’s going to be some charges associated with filing it with the state.”

What is the deadline? “The deadline to file your 2022 tax return is the 18th of April,” said Black. “If you find that you need more time to prepare your income tax return, it is possible to file and request an extension with the IRS. One really important thing to know about this is if you owe money to the IRS to pay taxes, you can’t get an extension to pay that bill. You need to pay that bill by that deadline of the 18th of April.”

Who can I ask for help? “For questions, I am always available,” said Dunn. “Go to asc.gatech.edu and submit a ticket. That’s the best and quickest way to go.”

What are some resources I can use to help me?

• Educational-Related Tax Credits: www.bursar.gatech.edu/content/tax-credits • Personal Finance for Ph.D.’s: http://www.pfforphds.com • IRS Free File: www.irs.gov/filing/free-file-do-your-federal-taxes-for-free • Tax Treaty Benefits: www.irs.gov/individuals/international-taxpayers/tax-treaties • LinkedIn Learning: www.linkedin.com/learning/finance-foundations-income-taxes-2 • Taxes 101 recording: www.grad.gatech.edu/taxes101 • Submit a Help Ticket: www.asc.gatech.edu • Tax Resources for International Students and Scholars: www.isss.oie.gatech.edu/content/tax-resources • Publication 970: Tax Benefits for Education (for use in preparing 2022 returns): www.irs.gov/pub/irs-pdf/p970.pdf

Sara Franc Communications Officer Graduate and Postdoctoral Education

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Do I include my scholarship, fellowship, or education grant as income on my tax return?

Information you'll need

Type of educational assistance received.
Terms of the scholarship as to what expenses the funds can be applied toward.
What kinds of expenses that were paid from funds received.
Timeframes of attendance.

The tool is designed for taxpayers who were U.S. citizens or resident aliens for the entire tax year for which they're inquiring. If married, the spouse must also have been a U.S. citizen or resident alien for the entire tax year. For information about nonresidents or dual-status aliens, please see International taxpayers .

Conclusions are based on information provided by you in response to the questions you answered. Answers do not constitute written advice in response to a specific written request of the taxpayer within the meaning of section 6404(f) of the Internal Revenue Code.

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Stipend vs. Scholarship vs. Research Grants - Taxation Methods

To whomever you are, firstly - thank you for contributing to research and development and pursuit of furthering our knowledge of a particular field. Without your efforts and intellectual curiosity, we would be naught for progress as a civilization, and relegated to becoming accountants. Keep up the good work..

Now - let’s examine the taxation of the various grants/monetary stimulus you can receive as a research scientist.

A stipend fully taxable and reported as wages, although W2 not issued;

Scholarship - partially taxable. Amount spent on tuition and qualified education expenses (provide link) not taxable, the remainder is taxable ordinary income. Reported on 1098-T if from USA stipend is treated as a

Scholarships

Scholarships are tax free (excludable from gross income) if you are a candidate for a degree at an eligible educational institution. These payments will not generate a W2, 1099, but if received from a US institution it will be on form 1098-T.

The payment received by the individual will be tax free if it is used for Qualified Expenses.

- Tuition & required fees

- Books/supplies/equipment required for all students in the course

Expenses that are not qualified include life expenses such as room & board and travel. The grant also cannot include payment for services such as teaching, research, or other services as a condition for receiving the scholarship.

There are exceptions to this rule -- if you receive the amount under one of these programs.

- The National Health Service Corps Scholarship Program (NHSC)

- The Armed Forces Health Professions Scholarship and Financial Assistance Program (HPSP)

Fellowship and Research Grants

Generally, research grants is non-taxable (ie - excludable from gross income) if they meet one of the following conditions:

a. The grant qualifies as a prize or award that is excludible from gross income under Internal Revenue Code section 74(b).

In non-legalese, what this means is that the individual could not have made an action to enter the contest of proceeding on their own, the individual is not required to render future services as a condition to receiving the award, and the prize/award is transferred by the payor to a governmental unit or organization.

b. The grant/prize remains non-taxable if the grant's purpose is to achieve a specific objective - ie produce a report or product, or to improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill or talent of the grantee.

Non-US citizen grants

Generally, academic institutions who issue grants and fellowship payments to Nonresident Aliens (present in the US) - will issue form 1042-S, which will also contain withholding information. The amount of withholding will depend on the visa status of the recipient.

F-1, J-1, M-1, or Q-1 --- a stipend paid to a non-resident alien with these visas will be subject to federal tax withholding at a rate of 14% unless tax treaty relief is available.

Non-US persons with a B visa will have 30% of payments withheld, without provisions for reduction of withholding.

/images/cornell/logo35pt_cornell_white.svg" alt="does a phd scholarship count as income"> Cornell University --> Graduate School

Understanding the 1098-t form.

Students receive a form 1098-T that is generated by the university in order to claim certain educational credits. While Cornell staff are not legally able to provide tax advice because each student’s circumstances will be different, we can explain what you can expect to see in the boxes and what that information might mean. Only a trained, certified tax advisor can provide appropriate individual guidance for you. It’s important to remember that the 1098-T is an information form only and does not directly define taxable income or eligibility for a credit. Students may need to provide copies of their bursar bill to their tax preparer to confirm the dates that stipends were refunded.

Box 1 displays the total tuition costs and required fees that were paid during the tax year. Some students who self-pay these expenses may be able to claim a tax credit such as the American Opportunity Credit, the Hope Credit, or the Lifetime Learning Credit, based on this amount. Student Health Plan costs are not included in box 2.

Box 5 displays the total of all scholarship and fellowship awards.

Students who receive scholarship or fellowship will see the sum of their eligible awards reported in box 5 on the 1098-T. Fellowship and scholarship support is generally tax-free when applied specifically to the cost of tuition, required fees, books, and some required course supplies or equipment. Health insurance is not typically considered to be a “required fee” because at Cornell, like most universities, students must have insurance but not all students are required to buy the policy if they have another acceptable plan.

Perhaps you’ve seen online discussions suggesting that even experts don’t always agree on this. If you are working with a tax advisor you can refer her or him to University Policy 1.3 on graduate assistantships. It describes how Cornell assistantships both require and provide coverage in the Student Health Plan, as a condition of the appointment, but not specifically as a condition of being a Ph.D. student.

Additional information:

Information on the 1098-T form at Cornell University
About Form 1098-T from the IRS
Educational tax credits info from the IRS
IRS guidance on choosing a tax advisor or preparer

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This page, Directive 95-9: Tax Treatment of Scholarships and Grants for Residents and Nonresidents of Massachusetts, is offered by
Massachusetts Department of Revenue

Directive Directive 95-9: Tax Treatment of Scholarships and Grants for Residents and Nonresidents of Massachusetts

Personal Income Tax

FACTS 1 : Taxpayer Jones is an undergraduate student at a university located in Massachusetts. Taxpayer Jones receives a scholarship covering his tuition, fees, and living expenses incurred as a student at the university. Taxpayer Jones is a resident of Massachusetts.

ISSUE 1 : To what extent are scholarships and grants includable in the gross income of a Massachusetts resident for Massachusetts personal income tax purposes?

DIRECTIVE 1 : Scholarship and grant amounts are included in Massachusetts gross income to the extent that they are included in federal gross income under Internal Revenue Code § 117. Amounts that are not so included are not taxable in Massachusetts. G.L. c. 62, § 2. "Qualified scholarship" amounts are excluded from both federal and Massachusetts gross income and are not subject to Massachusetts personal income tax.

FACTS 2 : Taxpayer Smith is a graduate student at a university located in Massachusetts. Taxpayer Smith receives a stipend or grant covering her tuition, fees and living expenses while she is a student at the university. Taxpayer Smith is required to teach in return for the grant. Taxpayer Smith is not a resident of Massachusetts.

ISSUE 2 : To what extent are scholarships and grants includable in the taxable income of a Massachusetts non-resident for Massachusetts personal income tax purposes?

DIRECTIVE 2 : Scholarship and grant amounts that are derived from or effectively connected with teaching, research or other services carried on by a non-resident in Massachusetts are includable in a non-resident's federal and Massachusetts gross income and therefore taxable under G.L. c. 62, § 5A. "Qualified scholarship" amounts are excluded from both federal and Massachusetts gross income whether or not the recipient is a Massachusetts resident.

DISCUSSION OF LAW

A. Federal Law

Under Internal Revenue Code ("I.R.C.") Section 117, federal gross income does not include any amount received as a "qualified scholarship" by an individual who is a candidate for a degree at an educational institution as described in I.R.C. § 170(b)(1)(A)(ii). A qualified scholarship is defined as "any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses." I.R.C. § 117(b)(2). Qualified tuition and related expenses are limited to tuition, fees, books, supplies and equipment required for study. Id. Amounts used for expenses such as room and board or other living expenses are not considered to be "qualified tuition and related expenses" and are not excluded from federal gross income. Amounts received by a student as payment for teaching, research, or other services in the nature of part-time employment required as a condition to receiving a scholarship or grant are not excluded from gross income. Treas. Reg. § 1.117-2(a)(1); I.R.C. § 117(c).

B. Massachusetts Law

Massachusetts gross income includes all items included in federal gross income as defined in the Internal Revenue Code as amended and in effect as of January 1, 1988, unless there exists a specific modification in the Massachusetts General Laws which includes a federally excluded item or excludes a federally included item from Massachusetts gross income. G.L. c. 62, § 2. Similarly, items that are excluded from federal gross income are excluded from Massachusetts gross income.

Since qualified scholarship amounts are excluded from federal gross income under I.R.C. Section 117, and no Massachusetts modification applies, such amounts are also excluded from Massachusetts gross income. The tax treatment of such amounts is the same whether the taxpayer is a resident or non-resident of Massachusetts. G.L. c. 62, § 2.

Scholarship and grant amounts that are included in federal gross income under I.R.C. § 117 (such as amounts for living expenses) similarly are also includable in Massachusetts gross income and are taxable under G.L. c. 62, § 2(a) when paid to a resident of Massachusetts.

For non-residents, however, the tax treatment of scholarship and grant amounts is limited. Non-residents are taxed only on items of gross income that are derived from or effectively connected with any trade or business, including 1) any employment carried on by the taxpayer in the commonwealth; 2) the participation in any lottery or wagering transaction within the commonwealth; or 3) the ownership of any interest in real or tangible personal property located in the commonwealth. G.L. c. 62, § 5A(a). While G.L. 62, § 5A mentions items of gross income from "sources within the commonwealth," the statute defines "sources" in terms of activities that occur in Massachusetts. Therefore, scholarship and grant amounts that are derived from or effectively connected with "teaching, research or other services" carried on by a non-resident in Massachusetts are includable in Massachusetts gross income and subject to Massachusetts personal income tax, regardless of whether such amounts are paid by a granting organization located within or without Massachusetts. The location of the payor or grantor is irrelevant. It is where the activities are carried on by the grantee that determines taxability of such amounts. Scholarship and grant amounts that are received by a non-resident and specifically designated for use for living expenses, however, are not subject to Massachusetts personal income tax, since they are not connected to an activity specified in G.L. c. 62, § 5A(a).

/s/Mitchell Adams Mitchell Adams Commissioner of Revenue

MA:HMP:rmh

July 12, 1995

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PhD Studentships
Funding a PhD
Studentships are scholarships awarded to PhD students, with funding provided by either a Research Council , university , private body or research charity .
Most studentships are linked to a specific research project or a field of study .
Can either be partially funded (covering fees only) or fully funded (covering fees and providing an allowance for living costs – the stipend).
Universities commonly require candidates to have a 2:1 or 1st class honours degree; a relevant Masters degree may be useful for a successful applicant but not essential.
Most studentships don’t allow other sources of funding e.g. bursaries or PhD loans.

What Are PhD Studentships?

A studentship is a non-repayable scholarship available to PhD students to support their doctoral studies. At a minimum, all studentships will cover a student’s tuition fee, however they may also cover the student’s living expenses (referred to as a stipend or maintenance grant) depending on the specific type of studentship awarded.

Who Are They Awarded By?

The most common source of PhD funding is through a Research Council, in which a studentship is awarded in the form of a Research Council Grant . In the UK, there are seven Research Councils as listed below:

Arts and Humanities Research Council (AHRC)
Biotechnology and Biological Sciences Research Council (BBSRC)
Engineering and Physical Sciences Research Council (EPSRC)
Economic and Social Research Council (ESRC)
Medical Research Council (MRC)
Natural Environment Research Council (NERC)
Science and Technology Facilities Council (STFC)

Collectively, these councils form part of a government body known as UK Research and Innovation (UKRI) which provide funding to PhD students to advance research. UKRI aims to provide the best environment for research and innovation to thrive by working in collaboration with universities, research organisations, companies, charities and governments.

The second most common source of studentships is directly from universities in the form of scholarships and bursaries . Although not always the case, studentships provided by universities are often linked to a specific project title or field of study and may also be linked at least in part to Research Council funding. This means that you must undertake a PhD project in a specific pre-determined subject area in order to meet the eligibility criteria for funding.

The other source of studentships is through professional bodies (e.g. Institution of Mechanical Engineers) and research charities (e.g. Wellcome Trust and Cancer Research UK). These studentships are known as Cooperative Awards in Science and Engineering (CASE). In nearly all cases, CASE studentships are also linked to a specific project title or field of study.

How Much Funding Can I Receive?

A successful applicant may receive two types of studentships: partially funded and fully funded . Partially funded studentships typically cover the cost of a student’s tuition fees and possibly any associated project costs. This can include aspects such as training courses and travelling for meetings and conferences, though the exact scope of what’s included differs for each studentship.

Although tuition fees vary depending on university, the indicative fee is £4,500/year as stated by the UKRI for UK students.

A fully funded studentship covers the same aspects of a partially funded studentship, however, in addition to this, it also provides a tax-free maintenance grant to cover the student’s cost of living . This maintenance grant is more commonly referred to as an annual stipend and looks to provide enough additional funding that the student need not look for part-time work to pay for their living costs whilst undertaking their PhD. It should be noted stipends provided by Research Councils will need to meet a nationally agreed minimum level; for 2021/22, this minimum level has been set as £15,609 . Living costs do of course vary between cities and it’s something you should factor in when planning your budget. Most universities do offer students the opportunity to earn a little extra money (e.g. by teaching undergraduates) to supplement your stipend.

Am I Eligible for a PhD Studentship?

The eligibility requirements differ between studentships, however, most will require the following in order to be eligible for financial support:

A Bachelors degree with a 2:1 or above
A relevant Masters degree

There may also be some restrictions which deem you non-eligible for a studentship. These are commonly:

If you already hold a doctoral degree
If you receive funding from another source e.g. a doctoral loan

As the requirements differ for each studentship, there may be some further requirements or restrictions in addition to the above. For example, some studentships restrict how many hours of paid employment you can undertake alongside your PhD and some are limited to students fitting certain criteria e.g. coming from a low-income household or being of a certain ethnicity.

Therefore, make sure you read the descriptions of any studentship carefully and in full before making any decisions.

Note: Being eligible for a PhD studentship does not guarantee you one. With exception to a few, all studentships are awarded based on ability, therefore, funding will be awarded to the best PhD applicants applying for the studentships.

UK PhD studentships are now typically only open to UK students , with fewer being available to EU and international students. One of the key reasons for this are the higher tuition fees that students outside the UK will need to pay. Some universities may offer EU/international students studentships if they are able to cover the additional fee costs themselves. However, even if you are an EU student, you still may be limited to only a partially funded studentship meaning only your fees will be covered, so it is important to be clear on what you’re eligible for and the deadline for applications. For further clarification, see the table below:

How Do I Apply for a PhD Studentship?

The application process can be initiated in one of two ways. First, some universities will automatically consider you for a studentship when they receive your application to undertake a PhD. For example, Nottingham Trent University specifies the below as their arrangements:

The NTU Doctoral School will treat your online form as an application form for a place to study for an MPhil/PhD doctoral research degree at Nottingham Trent University, as well as a funding application for the 2020 Nottingham Trent University PhD Studentship Scheme.

Second, some universities will require you to submit a separate funding application form. If you are required to submit a separate application, these are usually made directly to university regardless of the source of the funding body i.e. a Research Council or professional body. This is because although the studentship funding may be provided from a non-academic body, as the academic institute hosting the PhD project, the university will be responsible for assessing candidates and selecting the most suitable one. Be mindful that these may come with a strict application deadline.

If you are required to submit a separate application, you will typically be asked for:

Your PhD application form
A research proposal
A cover letter
Your references

Upon receiving your application, the PhD supervisor will likely have an informal discussion with you, either by email, over the phone or in person. In some cases, you may be invited in for a formal interview .

Regardless of which of the two situations occurs, the potential supervisor will use the discussion alongside your application to determine whether you should be awarded the PhD programme and studentship. Following their decision, they will get in touch with you to let you know the outcome.

It’s worth noting that in some cases, the potential supervisor may decide that you are suitable to undertake the PhD project but are not the strongest candidate who has applied across all PhDs within their department. If this is the case and the studentship is linked to a research topic as opposed to the specific project title you are applying for, you may be offered the PhD opportunity but not the studentship. If this occurs, you will need to consider your alternative PhD funding options, such as funding it yourself or obtaining a PhD loan, before making your decision.

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Scholarship payments

Scholarships you receive or made on your behalf as a student at a school, college or university may be exempt income.

Last updated 25 April 2023

What is a scholarship?

When we say 'scholarship' we mean the following types of payments:

a scholarship
an educational allowance
educational assistance.

A scholarship can be a one-off payment, or a series of payments over one or more years as either:

an amount of money you receive
a payment made on your behalf.

Scholarship payments help you with your educational expenses or other requirements. For example, payments may include:

offsets for tuition fees
a regular amount for general living costs – such as travel or boarding
allowances to cover particular costs – such as uniforms and textbooks.

Scholarship payments may be exempt income (not taxable income). You need to work out if your scholarship payment is either wholly or partially assessable or exempt income.

If your scholarship is not exempt, you need to include it as income in your tax return.

Scholarship money comes from any number of sources such as a university, government, a business or an individual philanthropist. You might receive your scholarship payment directly from the source or through an administrator which is often your university.

Your scholarship agreement will set out:

the amounts you receive
when you will receive payments
any conditions that apply to continue to get the scholarship
what you can spend the money on (in some cases).

You generally apply for a scholarship by submitting an application. It is usually granted on merit or some process involving specific criteria.

A scholarship is not a loan. There are no repayment requirements.

Example: scholarship arising from charitable bequest

Jenny is a full-time student doing an undergraduate degree. She applies for and wins the 'Fearless Journalist' award. This gives her fortnightly payments over the course of her degree which she uses to pay for her HECS-HELP debt and text books.

The 'Fearless Journalist' award is from investment income that comes from capital donated in the Will of Jack Jones. The payments go to the most meritorious applicant in the journalist course at Williams University, who shows the most potential to succeed in fearless journalism.

The money Jenny receives for the award is a scholarship.

Exempt income from a scholarship

For a scholarship payment to be exempt from paying tax, you must meet all of the following conditions:

The payment can't be an excluded government payment (for example, Austudy, Youth Allowance or ABSTUDY).
There is no requirement for you to do work (either as an employee or contract for labour, now or in the future).
You are a full-time student at a school, college or university .
The scholarship is provided to you principally for educational purposes .

Your scholarship provider may be able to tell you if your scholarship is exempt or assessable income. In some cases, they will already have sought advice from us.

Use our scholarships decision tool to help you work out if your scholarship is exempt or assessable income.

Work requirement

Your scholarship payment is not exempt income if, as a condition of the scholarship, you work or will work in the future for the person or organisation funding the scholarship. This includes work:

as an employee or under a contract for labour
that is done without a contract or any other form of legal relationship.

Example: requirement to work as employee – not exempt income

Henry receives a Delilah Limited scholarship for university students. The scholarship has certain conditions. The payments are conditional on Henry achieving a minimum grade each semester. Henry must submit a copy of his academic record to Delilah Limited each semester.

There may also be a requirement for Henry to complete paid vacation employment with Delilah Limited during the scholarship term. The scholarship payment depends on him working under the terms set out by Delilah Limited.

If Henry completes his studies successfully, Delilah Limited may offer him a position. If Henry does not accept the position, he may need to repay some or all of the scholarship. Delilah Limited also has the right of first refusal should Henry need to do other work experience as part of his course.

The scholarship payments are not exempt income. Henry may need to become Delilah Limited’s employee, at their discretion, for a period set out in the scholarship agreement.

Full-time student at a school, college or university

For your scholarship payment to be exempt income you must be studying full-time at a school, college or university. You do not need to be physically at the school, college or university but must be studying a full-time load.

Example: part time university study – scholarship payment not exempt

Kirra receives a scholarship from her local government. The scholarship is available to women in their second or third year of study who are doing a science degree at a local university.

Under the scholarship agreement, Kirra receives $1,000 to assist her to pay for education expenses.

Kirra studies part-time.

Even though Kirra is doing a university degree, her scholarship payments are not exempt income because she is not studying full-time.

Educational purposes

For your scholarship payment to be exempt income, it must be provided to you principally for educational purposes. This includes education at a place of learning such as a university campus or a full-time degree provided online, and can also include a component of work experience.

Work experience at the premises of an organisation is for your education as long as your education is the most important factor for the work experience (and not the output you are producing). If you are working alongside employees and producing outputs that a similarly experienced employee or contractor would produce, your scholarship would generally not be considered as being provided principally for educational purposes.

Example: work experience requirement as part of the course – exempt income

The AAA University has a veterinary course that requires all students to complete work experience with a qualified practitioner as part of the course's qualification requirements.

A select number of students in the course receive a scholarship from the university. The scholarship payments go to students throughout the length of the course, including when students do their work experience.

The students gain work experience from their participation at the practitioner's clinics in a six-month period. Students do not provide normal vet services to the owners of the animals.

The scholarship payments are exempt because they are provided principally for educational purposes.

Example: scholarship requires work experience – exempt income

Megan receives a vacation scholarship from her university funded by WalesCo, an external organisation. A panel consisting of representatives from both the university and WalesCo, select the scholarship recipient.

Under the scholarship agreement, Megan receives 4 equal payment instalments over 2 years. In return, she must complete 10 weeks of professional vacation work experience with WalesCo each year. Megan can select when she will carry out the work experience and the hours she will attend. She rotates between departments within WalesCo to give her an insight and enable her to observe and learn from the various projects WalesCo undertakes.

The scholarship agreement states there is no requirement for Megan to become an employee of WalesCo, and nor is Megan an employee. She remains enrolled in full-time study during the time she is doing the work experience.

Megan’s scholarship is exempt income. The benefit of Megan’s work is limited (both by time, and is not concentrated on one project). This demonstrates that WalesCo is not engaging Megan for her work output, but to assist her in her education by providing work experience.

Example: company sponsored PhD study – not exempt income

Diego resigns as an employee of Alpha Co to do a full-time study course. He is completing research for a PhD which involves an area in which Alpha Co has a commercial interest. Diego had been part of a team working on this project before resigning.

Diego applies for and wins a research scholarship that Alpha Co funds. The scholarship administration is done by the university. The university pays weekly support for Diego during his study.

Diego works alongside Alpha Co's current employees. Alpha Co's expectation is for him to produce the same output and contribute in the same way as those employees.

Diego's weekly support payments are not exempt income. The scholarship is not provided principally for educational purposes. Instead, Alpha Co benefits from his participation as Diego is producing outputs that an employee or contractor with similar experience would produce while he is completing his PhD.

Scholarship payments specifically exempt from tax

The following education and training payments are specifically exempt from tax. You don't need to include these in your tax return.

Payments under a Commonwealth scheme for assistance of secondary education or the education of isolated children.
Grants from the Australian-American Educational Foundation – the Fulbright Commission.
Endeavour research fellowships and Executive Awards.

Scholarship payments and your tax return

If your scholarship is taxable :

you need to show your scholarship amount as assessable income in your tax return
you should advise your scholarship provider that your scholarship is assessable income for tax purposes.

The scholarship provider may need to withhold tax from your periodic payments depending on:

the information you provide on your tax file number (TFN) declaration
the amount paid to you.

If your scholarship is not taxable (exempt income):

you don't include your scholarship amount as assessable income in your tax return
that your scholarship is exempt income
they don't need to withhold tax from your periodic payments.

IMAGES

How do Scholarships Work? Everything You Need to Know
Do Scholarships Count as Income?
Does scholarship count as income?
List of Fully Funded PhD Scholarships 2021 (Step by Step Process
How much does a PhD student earn? Comparing a PhD Stipend to Grad
How Much Does a PhD Cost? [Infographic]

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COMMENTS

Topic no. 421, Scholarships, fellowship grants, and other grants
Generally, you report any portion of a scholarship, a fellowship grant, or other grant that you must include in gross income as follows: If filing Form 1040 or Form 1040-SR, include the taxable portion in the total amount reported on Line 1a of your tax return. If the taxable amount wasn't reported on Form W-2, enter it on Line 8 (attach ...
Taxes for Grads: Do Scholarships Count as Taxable Income?
The $1,500 typically counts toward your taxable income for the year. The remaining $3,500 is usually not taxable, as long as you're a degree student at a qualifying institution and the money is used for qualified education expenses. If you receive a scholarship with the condition that you provide services in the future, you'll typically need ...
How to Prepare Your Grad Student Tax Return (Tax Year 2023)
The sources of PhD student funding, ... Awarded income typically comes from scholarships, waivers, remissions, and awards. If you did not receive a 1098-T from your university, you should look at the transactions in your student account (e.g., Bursar's account, Cashier's account) to see the money posted there on your behalf. ...
Are Scholarships And Grants Taxable?
Some grants are treated the same as a tax-free scholarship, and the amounts you use to pay for qualified education expenses are tax free. These include: Fulbright Grants. Pell Grants. Other Title IV need-based education grants. If you've received one of the grants mentioned above and used the money appropriately, the grant money is not taxable.
Scholarship Money And Taxes
Report the full amount of scholarship income on one of these: Form 1040, Line 7. Form 1040A, Line 7. Form 1040EZ, Line 1. Write "SCH" and the amount on the dotted line to the left of Line 7 or Line 1. The full amount of the scholarship is also taxable if both of these apply: You're a degree-seeking student.
The Big Questions About Scholarship Taxability
In some cases, a scholarship is really more of a stipend, providing compensation for services while you're in school or for services you'll provide in the future. If, for example: You receive a $5,000 scholarship with $1,500 of it designated to pay for your teaching services. The $1,500 counts toward your taxable income for the year.
PDF Are your scholarships, grants, and tuition waivers
Q8: Will you have to pay tax on your scholarships, grants, or tuition waivers? Yes, if your adjusted gross income (AGI), including the taxable portion of scholarships, grants, or tuition waivers, is above the standard deduction of $12,200 in tax year 2019. Q9: Do you have to report scholarship, grant or tuition waiver income on your state ...
The ABCs of Scholarship Tax Rules
In some cases, only a portion of the scholarship is exempt from tax. For instance, suppose your child receives a $25,000 award, where $15,000 goes to tuition and $10,000 to room and board. In this case, only $15,000 is excluded from tax. The remaining $10,000 is treated as taxable income. For these purposes, a "degree candidate" is defined ...
When Are Scholarships Taxable?
The thing to watch out for here is whether you're awarded the scholarship only because you agree to do something in exchange for the money. Again, read the fine print. The entirety of most scholarships is not typically given in exchange for services rendered. One might offer an additional $1,500 or $2,000 if you perform a certain service or job.
Taxation of Scholarships, Fellowships & Stipends
A scholarship payment received by a candidate for a degree is generally not taxable income to the student if it is used for "qualified expenses." Qualified expenses are defined by the Internal Revenue Service (IRS) and include tuition and required fees, and/or for books, supplies, and equipment required of all students in the course.
funding
Either way, the student pays federal income tax, but any tax treat may affect the taxes for international students. There is also FICS (tax paid for the social security pension) which students on stipends and non-resident aliens don't have to pay, but US citizens/permanent residents on salary do have to pay. -
Taxes 101 for Graduate Students
If that is taxable income, you need to keep track of that. Keep in mind that when you go to file your tax return, you will be required to pay that tax at that time." 1042-S: "For scholarship and fellowship income for our international students, generally, there is going to be a 1042-S that is produced for you to report that income," said ...
Do I include my scholarship, fellowship, or education grant as income
Terms of the scholarship as to what expenses the funds can be applied toward. What kinds of expenses that were paid from funds received. Timeframes of attendance. The tool is designed for taxpayers who were U.S. citizens or resident aliens for the entire tax year for which they're inquiring.
Stipend vs. Scholarship vs. Research Grants
Scholarships are tax free (excludable from gross income) if you are a candidate for a degree at an eligible educational institution. These payments will not generate a W2, 1099, but if received from a US institution it will be on form 1098-T. The payment received by the individual will be tax free if it is used for Qualified Expenses.
Understanding the 1098-T Form : Graduate School
It's important to remember that the 1098-T is an information form only and does not directly define taxable income or eligibility for a credit. Students may need to provide copies of their bursar bill to their tax preparer to confirm the dates that stipends were refunded. Box 1 displays the total tuition costs and required fees that were paid ...
united states
First of all, Taxable Income and Taxable Compensation are not the same thing; they need not be equal. Second of all, my scholarship actually does count as Taxable Income. It exceeds my Qualified Education Expenses. It's just not on a W-2. -
Directive Directive 95-9: Tax Treatment of Scholarships and Grants for
Personal Income Tax FACTS 1 : Taxpayer Jones is an undergraduate student at a university located in Massachusetts. Taxpayer Jones receives a scholarship covering his tuition, fees, and living expenses incurred as a student at the university. Taxpayer Jones is a resident of Massachusetts. ISSUE 1 : To what extent are scholarships and grants includable in the gross income of a Massachusetts ...
I have a college scholarship that covers my tuition and fees. Do I
Scholarship and fellowship payments for tuition and fees and course-related expenses required of all students are not counted as income in determining your eligibility. Payments for room and board ...
Is my scholarship taxable?
If your scholarship is not taxable: you should advise your scholarship provider that your scholarship is exempt income - they do not need to withhold tax from your periodic payments; you should not show your scholarship as assessable income in your tax return. Limitations. This tool does not deal with Commonwealth education or training ...
PhD Studentships
Studentships are scholarships awarded to PhD students, with funding provided by either a Research Council, university, private body or research charity. Most studentships are linked to a specific research project or a field of study. Can either be partially funded (covering fees only) or fully funded (covering fees and providing an allowance ...
Does PhD scholarship count as employment income? : r/Centrelink
Does PhD scholarship count as employment income? Jobseeker (JSK) I'm about to start a full-time PhD and I'll be getting a merit-based scholarship ( not a commonwealth scholarship). The scholarship is non-taxable. I've let Centrelink know about the scholarship. I understand that I will no longer be eligible for Jobseeker when I start, so I ...
Scholarship payments
A scholarship can be a one-off payment, or a series of payments over one or more years as either: a payment made on your behalf. Scholarship payments help you with your educational expenses or other requirements. For example, payments may include: allowances to cover particular costs - such as uniforms and textbooks.
Does a PhD stipend count as income for credit card applications?
For context: I start my PhD next week and am on a tax-free stipend of ~£18k. I'm very fortunate to be living with my family and so have few expenses. I am looking into credit cards to build my credit score and get reward points for travel etc. Credit cards I am looking at the moment include the AMEX Nectar, AMEX Rewards and Barclaycard Avios.

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