Most of the time, scholarships and grants for qualified school costs at eligible schools are not taxed as income. These are for students who want to get a degree and cover costs like tuition, fees, books, supplies, and tools needed for schoolwork. However, there are some situations where scholarships and grants might be taxable: Excess funds: The remaining amount may be taxable if the scholarship or grant exceeds your qualified educational expenses. non-qualified expenses: If you use the funds for personal expenses unrelated to education, that portion might be taxable. Teaching or research assistantships: If the scholarship or grant is awarded in exchange for teaching, research, or other services, it may be considered taxable income (similar to wages).