Scholarship tax calculator

What the number means

The main number is the part of your scholarship or fellowship grant that you must report as income. It is the total, minus the part that is tax free. A scholarship is tax free only up to the qualified education expenses it pays, only for a candidate for a degree, and only if it is not pay for services or earmarked for room and board. The rest, including room and board paid by a scholarship that requires it, is income, and pay for required teaching or research is earned income like wages.

How the credit enters

If you can claim the American opportunity credit (AOTC) or the lifetime learning credit (LLC), the expenses you paid with tax-free scholarship money cannot be used again. So excluding the scholarship from income lowers the expenses available for the credit. The calculator figures the credit on expenses minus the tax-free scholarship: for the AOTC, 100% of the first $2,000 plus 25% of the next $2,000; for the LLC, 20% of up to $10,000. It then multiplies by the income phase-out fraction (upper limit − MAGI) ÷ (upper − lower limit). Finally it tries every amount of tax-free scholarship that you could include in income instead, up to what is tax free and up to your living costs, and picks the one where credit − extra tax is highest. That follows the Publication 970 section "Coordination with Pell grants and other scholarships".

Worked example

This is Bill in Publication 970 (2025). Bill has $5,600 of tuition and $4,400 of room and board, a $5,600 scholarship that may be used for any expense, MAGI of $39,250 and a 12% marginal rate. If he leaves the whole scholarship out of income, it all pays tuition, his adjusted expenses are $0 and his AOTC is $0. If he includes $4,000 in income, that part is treated as paying room and board, the remaining $1,600 reduces tuition, so $4,000 of expenses earn the maximum AOTC of $2,500, against $480 of extra tax. The net gain is $2,020, the same as the difference in the Publication's figures. If Bill were not a degree candidate, the whole $5,600 would be taxable and his credit would be $2,500 before the phase-out.

Limits of this method and common mistakes

Assuming a flat tax rate. Extra income can push you into a higher bracket, reduce other credits such as the earned income credit, or raise state tax, so the rate you enter should be your real marginal rate. Refundable limits. The calculator assumes the credit is fully usable; 40% of the AOTC is refundable, but a student under age 24 in some situations cannot claim the refundable part. Tuition that is not "qualified". Room and board, insurance, medical fees, transportation and similar costs never count, and for the LLC books count only when paid to the school as a condition of enrollment. Not matching Form 1098-T. The amount on Form 1098-T can differ from what you paid; use what you paid. Earmarked money. If the award's terms say it can pay only tuition, you cannot decide to apply it to room and board.

Frequently asked questions

Is a scholarship taxable?

Part of it can be. According to IRS Publication 970, a scholarship or fellowship grant is tax free only if you are a candidate for a degree at an eligible educational institution, and only to the extent that (1) it does not exceed your qualified education expenses, (2) it is not designated or earmarked for other purposes such as room and board, and (3) it does not represent payment for teaching, research or other services required as a condition of receiving it. Qualified education expenses are tuition and fees required to enroll or attend, and course-related fees, books, supplies and equipment required of all students in the course. Room and board, travel, research, clerical help and optional equipment do not count. In the example below, a $9,000 award of which $3,000 pays for required services leaves $6,000 tax free (the qualified expenses are $6,000) and $3,000 taxable.

How do scholarships affect the American opportunity credit?

The credit is figured on qualified expenses you paid, and tax-free scholarship money reduces those expenses: the expenses paid with it cannot also earn a credit. The credit is $2,000 (100% of the first $2,000) plus 25% of the next $2,000, a maximum of $2,500 per eligible student, and 40% of it can be refundable. In Publication 970 (2025, chapter 2, Example 2), Bill has $5,600 of qualified expenses and a $5,600 scholarship that he excludes from income, so his adjusted expenses are $0 and his credit is $0.

When does it pay to include scholarship money in income?

Publication 970 says you may be able to increase your credit by including otherwise tax-free scholarship money in income when your qualified expenses minus the scholarship are less than $4,000 and the money could have been used for other costs such as room and board. The included amount is treated as paying those costs instead of tuition, so tuition is again available for the credit. In the Publication's Example 3, Bill includes $4,000 of his $5,600 scholarship: the credit becomes $2,500 and, at a 12% marginal rate used as in the Publication's tax figures, the extra tax is $480, leaving him $2,020 better off (the Publication shows tax after credits falling from $2,585 to $565). It only works if the scholarship's terms allow it to be used for living costs. Your own marginal rate, state tax, and other credits such as the earned income credit can change the result.

What are the income limits for the education credits?

For 2025, the American opportunity credit and the lifetime learning credit are both reduced when modified adjusted gross income (MAGI) is between $80,000 and $90,000 ($160,000 and $180,000 if married filing jointly), and are not allowed at $90,000 or more ($180,000 jointly). The reduction multiplies the credit by (upper limit − MAGI) ÷ (upper − lower limit). Publication 970's example: a joint return with MAGI of $165,000 and $5,000 of expenses has a tentative credit of $2,500, which becomes $1,875. You cannot claim either credit if you file as married filing separately. Starting in 2026 the person claiming the credit, and the student, must have a Social Security number valid for work, issued before the due date of the return.

What is the lifetime learning credit?

It is 20% of the first $10,000 of qualified expenses, so up to $2,000 per tax return, with the same MAGI limits as the American opportunity credit. It is nonrefundable. It can be used for undergraduate, graduate or job-skills courses with no limit on the number of years, but for each student you may choose only one of the two credits in a year. For this credit, books, supplies and equipment count only if they must be paid to the institution as a condition of enrollment. Choose the lifetime learning credit when the student is past the fourth year of postsecondary education or the American opportunity credit's other tests are not met.

Who claims the credit if the student is a dependent?

If a parent claims the student as a dependent, the parent claims the credit for the expenses paid by the parent or the student, and the parent's income decides the phase-out. Extra scholarship income then taxes the student, not the parent, which is why the form asks who claims the credit. A student who is claimed as a dependent by someone else cannot claim the lifetime learning credit or the American opportunity credit.

An estimate for planning only — not tax advice; your tax return and a tax professional decide. Sources, checked October 28, 2026: IRS Publication 970, Tax Benefits for Education (for 2025 returns, January 2026), chapter 1 (scholarships and fellowship grants, Worksheet 1-1), chapter 2 (American opportunity credit, "Coordination with Pell grants and other scholarships", Examples 1–4), chapter 3 (lifetime learning credit) and "What's New for Tax Year 2026". The amounts are in one table in the page's code and are updated when the IRS publishes a new edition. Related: the net price calculator, college savings calculator, income tax calculator and student aid index calculator. How we check our calculators.