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Form 1098-T Box 5: Scholarships or Grants Explained

Updated October 17, 2026. Quick answer: Box 5 of Form 1098-T shows the total of scholarships or grants that the school administered and processed for the student during the year. It concerns the student and whoever claims an education credit for that student, because the student copy says the amount may reduce the credit. The credit is figured on Form 8863 under the rules in Publication 970.

IRS worksheets read line by line: Pub 970 Worksheet 1-1.

Line-by-line IRS form guides for 2025: Form 8863 lines 27 to 30 and Form 8863 line 31.

Schedule 1 (Form 1040) for 2025, read line by line: Schedule 1 lines 8q to 8s, Schedule 1 line 11 and Schedule 1 lines 21 to 23.

What box 5 reports

The student copy says: “Shows the total of all scholarships or grants administered and processed by the eligible educational institution.” The rest of the form is laid out in the Form 1098-T and 1098-E boxes guide.

What counts as a scholarship or grant here

The filer instructions give the school its definition: “Scholarships and grants generally include all payments received from third parties (excluding family members and loan proceeds).” “This includes payments received from governmental and private entities such as the Department of Veterans Affairs, the Department of Defense, civic and religious organizations, and nonprofit entities.”

They also say when a payment is treated as administered by the school: “A scholarship or grant is administered and processed by you if you receive payment of an amount, whether by check, cash, electronic transfer, or other means, and such payment is designated as a grant or a scholarship by the payor, or the circumstances make it clear that the payment is a grant or scholarship.” “A Pell Grant is an example of a grant administered and processed by a college or university in all cases.” Note the exclusion for family members and loan proceeds. A parent’s payment and a student loan disbursement do not appear in this box.

Box 5 is separate from box 1

The two boxes sit side by side on the form but are not netted against each other. The filer instructions for box 1 say: “The amount reported is not reduced by scholarships and grants reported in box 5.” If box 1 shows a tuition payment and box 5 shows a scholarship, both numbers are meant to be read together. Box 1 is covered on its own page: Form 1098-T box 1.

How the amount can affect an education credit

The student copy states: “The amount of scholarships or grants for the calendar year (including those not reported by the institution) may reduce the amount of the education credit you claim for the year.” The parenthetical is worth a second look. A scholarship that did not run through the school’s accounts is not in box 5, but the form still says it can count.

Publication 970 states the adjustment rule for credits: “For tax-free educational assistance received in 2025, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period.” It lists what that assistance includes, starting with “The tax-free parts of scholarships and fellowship grants” and “The tax-free part of Pell grants”. It also says “Generally, any scholarship or fellowship grant is treated as tax free.” followed by conditions that can change that treatment, so read that passage in the publication itself.

The tip printed under box 5

The form carries a tip in its box 5 entry: “You may be able to increase the combined value of an education credit and certain educational assistance (including Pell Grants) if the student includes some or all of the educational assistance in income in the year it is received.” “For details, see Pub. 970.”

The publication develops this under the heading Coordination with Pell grants and other scholarships: “You may be able to increase your American opportunity credit when the student (you, your spouse, or your dependent) includes certain scholarships or fellowship grants in the student’s gross income.” “Scholarships and fellowship grants that the student includes in income don’t reduce the student’s qualified education expenses available to figure your American opportunity credit.”

It is also candid about the other side: “However, the increase in tax liability as well as the loss of other tax credits may be greater than the additional American opportunity credit and may cause your tax refund to decrease or the amount of tax you owe to increase.” “Your specific circumstances will determine what amount, if any, of scholarship or fellowship grant to include in income to maximize your tax refund or minimize the amount of tax you owe.” This page does not make that choice for anyone. The education credits page covers the credits.

The publication’s scholarship examples

Publication 970 includes short cases that show the reduction. In one, the scholarship is not reported as income and the expense base falls. In the next, “Because Joan reported the entire $2,000 scholarship as income, the qualified education expenses don’t need to be reduced.” “Joan is treated as having paid $3,000 in qualified education expenses.” In a longer example, “Bill figures the American opportunity credit based on qualified education expenses of $4,000, which results in a credit of $2,500”. These are the publication’s facts, not general results. Use them to see how the pieces fit, and read the full examples before comparing them to your own situation.

Edition and box numbers

The primary read for this page is the 2025 edition of Form 1098-T with its student instructions, the 2025 Instructions for Forms 1098-E and 1098-T, and Publication 970 for 2025 returns. The 2026 edition was the one irs.gov served as current on 2026-10-17. The 2026 student copy’s box 5 text reads the same as the 2025 text; the only year-specific changes on that copy are in the box 1 and box 7 descriptions. The 2026 box 5 text includes “Shows the total of all scholarships or grants administered and processed by the eligible educational institution.” The box 5 filer instructions also read the same in both editions. Check the tax year printed on the form you received before relying on any box description here, because the instructions are reprinted every year.

Common mistakes

  • Expecting box 1 to be lower because of a scholarship. The instructions say “The amount reported is not reduced by scholarships and grants reported in box 5.”
  • Leaving out aid that is not in box 5. The form says the amount “(including those not reported by the institution)” may reduce the credit.
  • Deciding on your own to include a scholarship in income without reading the trade-off. The publication warns of “the loss of other tax credits” and a result that may leave you owing more.

Related: Form 1098-T, education credits, 529 state tax benefits, and Form 1040.

Sources

Read from the IRS documents linked above on October 17, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.

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