Are Grants and Fellowships Taxable?

Why Does This Matter?

Many students, researchers, artists, and entrepreneurs receive grants or fellowships to support their education, work, or creative pursuits. But here’s the catch — not all funds are tax-free. Some are fully or partially taxable depending on how they’re used. This brings a common set of questions: Are these funds taxable? Do I have to report them on my tax return?

Let’s break it down so you know what to expect.

When Grants Are Not Taxable

Great news! Some grants and fellowships are completely tax free — as long as they follow these requirements:

• You’re a degree-seeking student at an eligible school, and
• The funds are used for:
  • Tuition
  • Required fees
  • Required books and supplies
  • Course-related equipment (only if required)

For example, if you received a $12,000 grant to pay for your undergrad school tuition, that amount is generally tax free.

When Grants Are Taxable

This is where it gets tricky. Grants and fellowships are taxable if they money is used for things that are not a qualified educational expense. These could include:

• Room and board
• Rent or groceries
• Travel
• Health insurance or medical bills
• Optional books or supplies
• Personal expenses
• Living stipends
• Grants with work requirements (like teaching assistantships)

For example, if you use some of your grant to pay for your off-campus apartment, that portion is going to be taxable and needs reported on your tax return.

Other Types of Grants to Know About

1. Emergency Grants (COVID-19, Disaster Relief)
   • May or may not be taxable depending on the program
   • Ex: CARES Act emergency student grants – generally not taxable
2. Business or Startup Grants
   • Treated as taxable income unless a specific exception applies
   • Must be reported on Schedule C or as part of business income
3. Fulbright & Similar Fellowships
   • Split into taxable and nontaxable portions based on use (tuition vs travel/living)
   • May also trigger foreign income reporting (Form 2555 or 1116)

Reporting Requirements

Even if it isn’t taxable, you may need to still report certain grants.

• Form 1098-T– issued by schools, showing tuition and scholarships
• Form 1099-MISCre-grants- if you received taxable grant payments
• W-2 – if your fellowship included work (like teaching or researching)

If any part of your grant is taxable, it will get reported on Form 1040, either as “Other Income” or as part of business income if it relates to work.

Final Thoughts

Grants and fellowships are a great opportunity–but it’s important to know that they’re not always tax-free. The key is understanding how the funds are used.

To reiterate:

📚 Used for tuition = usually not taxable
🏡 Used for living = usually taxable

When in doubt, keep track of your expenses and talk to a tax professional — especially if you’re dealing with complex programs or international fellowships.