Updated October 24, 2026. Quick answer: Tax Topic 421 is the IRS page on scholarships, fellowship grants and other grants. It says all or part may be tax-free if you are a degree candidate and the money pays tuition, required fees, books, supplies and equipment. Money for incidental expenses and for required services is taxable.
Quick reference
| Item | What the IRS topic says |
|---|---|
| Possibly tax-free | “all or part of the amounts you receive may be tax-free.” |
| Tax-free use of the money | “The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.” |
| Taxable: incidental expenses | “Amounts used for incidental expenses, such as room and board, travel, and optional equipment.” |
| Taxable: payment for services | “Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant.” |
| Estimated tax | “If any part of your scholarship or fellowship grant is taxable, you may have to make estimated tax payments on the additional income.” |
The terms the topic uses
The topic defines its words first. It says “A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution for the purpose of study.” It describes a fellowship this way: “A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.” It adds “Other types of grants include need-based grants (such as Pell Grants) and Fulbright grants.”
When the money is tax-free
The topic says “If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free.” It sets two conditions. The first is that “You’re a candidate for a degree at an educational institution”.
The second is about how the money is used: “The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.” Our pages on Form 1098-T Box 5 and the scholarship taxable income worksheet are related.
What is taxable and how it is reported
The topic lists amounts to include. It says “You must include in gross income:” and then names “Amounts used for incidental expenses, such as room and board, travel, and optional equipment.” and “Amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant.”
On the return, the topic says that if the amount was not in box 1 of Form W-2, “enter it on Line 8”. If it was in box 1 of Form W-2, it says to “include the taxable portion in the total amount reported on Line 1a of your tax return”. See also Schedule 1 lines 8q to 8s.
Estimated tax
The topic ends with “If any part of your scholarship or fellowship grant is taxable, you may have to make estimated tax payments on the additional income.”
Where this comes from
This page describes the IRS page titled Topic no. 421, Scholarships, fellowship grants, and other grants, as served on irs.gov on October 24, 2026. The IRS page shows that it was last reviewed or updated on 24 Sep 2026. The IRS can change a topic after we read it, and the IRS page controls. General information, not tax or legal advice.
Common mistakes
- Treating every dollar of a scholarship as tax-free. The topic says “all or part” may be, and lists taxable amounts.
- Counting room and board as tuition. The topic puts “room and board, travel, and optional equipment” in the taxable group.
- Forgetting pay for services. The topic includes “payments for teaching, research, or other services”.
- Skipping the degree condition. The tax-free rule begins with being “a candidate for a degree”.
Related: IRS tax topics by number, Form 1098-T Box 5 scholarships or grants, Scholarship taxable income worksheet, Form 1098-T, Schedule 1 lines 8q to 8s, and Form 1040 line 1a wages.
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Answer againSources
- IRS, Topic no. 421, Scholarships, fellowship grants, and other grants (irs.gov): https://www.irs.gov/taxtopics/tc421
- IRS, Tax topics index (irs.gov): https://www.irs.gov/taxtopics
Read from the IRS pages linked above on October 24, 2026. General information, not tax or legal advice. The IRS topic page and the instructions for your own form control, and your own facts decide the outcome.