Scholarships and Fellowship Grants

If you are a candidate for a degree, you may be able to exclude from your income part or all of the amounts you receive as a qualified scholarship. The rules discussed here apply to both resident and nonresident aliens.

If a nonresident alien receives a grant that is not from U.S. sources, it is not subject to U.S. tax. See Scholarships, Grants, Prizes, and Awards in chapter 2 to determine whether your grant is from U.S. sources.

Qualified scholarship. A qualified scholarship is any amount you receive as a scholarship or fellowship grant that you use according to the terms of the grant for:

1. Tuition and fees required to enroll in, or to attend, an educational institution, or
2. Fees, books, supplies, and equipment that the educational institution requires of all students for the courses of instruction.

Amounts you receive from a scholarship or fellowship that you use for other expenses, such as room and board or travel, are not excludable from income.

Terms of grant. Your scholarship or fellowship can still qualify as tax free even if the terms do not provide that it only be used for tuition and course-related expenses. It will qualify if you use the grant proceeds for tuition and course-related expenses. However, if the terms of the grant require its use for other purposes, such as room and board, or specify that the grant cannot be used for tuition or course-related expenses, the amounts received under the grant cannot be excluded from income.

Candidate for a degree. The term candidate for a degree means a student (whether full- or part-time) who:

1. Attends a primary or secondary school or is pursuing a degree at a college or university, or
2. Attends an educational institution that is authorized and accredited to provide:
   1. A program that is acceptable for full credit toward a bachelor's or higher degree, or
   2. A program of training to prepare students for gainful employment in a recognized occupation.

Payment for services. You cannot exclude from income the portion of any scholarship, fellowship, or tuition reduction that represents payment for teaching, research, or other services. This is true even if all candidates for a degree are required to perform the services as a condition for receiving the degree.

Example. On January 7, Maria Gomez is notified of a scholarship of $2,500 for the spring semester. As a condition for receiving the scholarship, Maria must serve as a part-time teaching assistant. Of the $2,500 scholarship, $1,000 represents payment for her services. Assuming that Maria meets all other conditions, she can exclude no more than $1,500 from income as a qualified scholarship.