Are Grants Taxable Income?

In the majority of cases, grant money is nontaxable as long as it is used by a student for qualified educational expenses at a degree-granting accredited institution, notes the Internal Revenue Service and TurboTax AnswerXchange. Likewise, artistic grants to individuals are generally nontaxable income.

According to IRS Tax Topic 421, as of 2014, student grant money is tax-free when used for tuition, books and fees required by the educational institution. Taxable educational expenses are peripherals such as room and board, transportation, clothing or incidentals; if a student uses grant money to pay for these things, the portion of the grant used for those expenses is taxable income and reported on Form 1040 on the line for Wages, Salaries and Tips. A student receives Form 1098-T that delineates the amount of money received from the school; this info is also reported to the IRS by the educational institution.

Also according to IRS Tax Topic 421, portions of fellowships and scholarships are taxable income if some of the money received is payment for teaching done under a fellowship. IRS Publication 970, "Tax Benefits for Education," gives complete details and instructions on determining what portion, if any, of grant, scholarship or fellowship income is taxable.

In contrast with student grants, as of 2014, individual grants such as those given to artists, writers or performers are more flexible in terms of how the recipient uses the money. These differences mainly deal in a broader definition of qualified expenses, as explained in the IRS Tax Code section on Grants to Individuals.