Scholarships are taxable depending on what they are spent on. If you are a degree candidate, the amount of your scholarship that covers tuition and any required fees, books, supplies, and equipment is not taxable. These books, supplies, and equipment have to be required of everyone taking the class in order to qualify. The portion of your scholarship that covers room and board, travel, research, clerical help, and equipment is taxable.
You do not have to report your scholarship or file an income tax return if your only income is a non-taxable scholarships.
The following is from the IRS publication 970 which includes information on athletic scholarships and fellowships as well.
Qualified education expenses. For purposes of tax-free scholarships and fellowships, these are expenses for:
- Tuition and fees required to enroll at or attend an eligible educational institution, and
- Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.
Expenses that do not qualify. Qualified education expenses do not include the cost of:
- Room and board,
- Clerical help, or
- Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.