Scholarship payments to employees: wages or not?

Who can exclude a scholarship

The first condition in Publication 15-A (2026) concerns the recipient. Only amounts that you pay as a qualified scholarship to a candidate for a degree may be excluded from the recipient’s gross income. A payment to someone who is not a degree candidate does not qualify as a qualified scholarship, however it is labeled. The calculator on this page has a checkbox for it; with it unchecked, nothing is excluded.

What counts as a qualified scholarship

A qualified scholarship is any amount granted as a scholarship or fellowship that is used for one of two purposes: tuition and fees required to enroll in, or to attend, an educational institution; or fees, books, supplies and equipment that are required for courses at the educational institution. The key words are required and used. Amounts used for expenses that the school does not require, such as optional equipment, are outside the definition, and the exclusion covers only the part actually used for qualifying costs.

Payment for services is wages

The publication says the exclusion from income does not apply to the portion of any amount received that represents payment for teaching, research or other services required as a condition of receiving the scholarship or tuition reduction. Those amounts are reportable on Form W-2. A graduate assistant whose tuition waiver is conditioned on teaching, for instance, can have a taxable part. The publication then lists exceptions where the exclusion still applies despite a service condition: the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, and a comprehensive student work-learning-service program operated by a work college as defined in section 448(e) of the Higher Education Act of 1965. The calculator does not model those exceptions.

Room and board

Any amounts you pay for room and board are not excludable from the recipient’s gross income, according to the publication. So a scholarship that covers housing and a meal plan has an includible part even if the student is a degree candidate and no services are required. The calculator separates this part so you can see how much stays in income. The publication does not say that room and board must be reported as wages on Form W-2; it says the amount is not excludable from gross income, so how it is reported for a particular recipient is a question for the payer and its tax adviser.

Payroll taxes on a qualified scholarship

A qualified scholarship is not subject to social security, Medicare and FUTA taxes, and not subject to federal income tax withholding. That means the employer does not run the excluded part through payroll. The part that is payment for services is wages and goes through payroll normally. For more on the education benefits, the publication refers to Publication 970, Tax Benefits for Education.

Worked example

A university pays a graduate research assistant a $20,000 fellowship. Of that, $12,000 is used for required tuition and fees, $5,000 is for room and board, and $3,000 is payment for research services required as a condition of the award. The student is a degree candidate. The qualified scholarship is $12,000: it is excluded from gross income and has no payroll tax or withholding. The $3,000 for services is wages reportable on Form W-2. The $5,000 for room and board is not excludable, so the includible total is $8,000 ($3,000 plus $5,000). Enter 20000, 12000, 5000, 3000 and tick the box to see it.

The example is ours, with invented amounts, built from the rules above; the publication does not print this scenario. Real awards can have more moving parts, such as grants from several sources and awards tied to specific programs.

Limits of this page

This page covers the employer-side summary in Publication 15-A. The recipient’s own treatment, including how to report taxable scholarship amounts on a return, is in Publication 970. State rules, financial aid rules and institutional policies are separate. For the payroll arithmetic on the wage part, see our FICA tax calculator.

Sources

• IRS Publication 15-A, Employer’s Supplemental Tax Guide (2026): section 5, Wages and Other Compensation: Scholarship and Fellowship Payments. Read November 2, 2026.

Edition read: Publication 15-A (2026), for use in 2026. Rates, wage bases and dollar limits on this page are the 2026 figures printed in that edition; check the current publication and the IRS employment tax pages for your tax year. This page summarizes the publication and does not replace it.