IRS Reductions on Scholarships, Fellowships, Grants, and Tuition
Tax Liability Notice
A recipient of a scholarship, fellowship, or grant, under the tax laws, generally have to pay taxes on scholarship, fellowship, or grant to the extent you use the funds for tuition, fees, books, and equipment requirement for classes or enrollment. In other words, if funds from the scholarship, fellowship, or grant are used for these types of expenses, then it should be excluded from your income for tax purposes.
However, any portion of the scholarship, fellowship, or grant payment you spend on incidental expenses could be included in your taxable income for the year. Therefore you have to pay income taxes on the portion of a scholarship, fellowship, or grant spent on items such as room and board, travel, research, and medical insurance.
It is your responsibility to make the determination regarding whether a given scholarship, fellowship, or grant is taxable based on your individual facts and accounting of all the scholarships, fellowships, or grants that you may have received. Should you determine that a portion or all of the funds are not subject to tax, you should retain receipts, cancelled checks, and other documents that could show the total amount of your qualifying expenses.
Should you have any questions or concerns regarding your circumstances, please contact your personal tax advisor.
A guide to Federal Tax Issues for Colleges and Universities
A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. The student may be either an undergraduate or a graduate.
A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.
Payments of scholarships, fellowships, and grants paid to U.S. citizens and resident aliens are not generally reportable to the IRS and are not generally subject to withholding of tax. However, payments of taxable scholarships, fellowships, and grants to nonresident aliens are generally reportable to the IRS and are generally subject to withholding of U.S. Federal income tax.