Can I Exclude Scholarships from My Income?

Scholarship amounts used to pay for tuition, fees, and required course materials at a degree-granting institution are excluded from income. However, scholarship money used for room and board, transportation, or other living expenses is taxable. If a scholarship requires you to perform teaching, research, or other services, the portion representing payment for those services is taxable as compensation. Athletic scholarships are generally tax-free as long as the student is enrolled in a degree program. Tax-free scholarships may reduce your available expenses for education credits like the AOTC — you can only claim credits on expenses not already covered by tax-free aid.