The IRC 117 exclusion
When is a stipend tax-free?
Under IRC Section 117, a scholarship or fellowship grant is excluded from gross income only if all three conditions are met:
- The recipient is a degree-seeking student at an eligible educational institution
- The funds are used for qualified tuition and required fees (including required books, supplies, and equipment)
- The grant does not require the student to perform services (teaching, research, or other work) as a condition of receiving the payment
Anything that does not meet all three conditions is taxable. The most common reason a scholarship becomes taxable is that the funds are designated for or used to pay living expenses rather than tuition.
How are graduate fellowship stipends taxed?
Graduate students often receive stipends that combine tuition remission and a living allowance. The tax treatment depends on each component:
- Tuition waiver: Generally tax-free if the student is a degree candidate. For graduate teaching or research assistants, tuition reduction is excluded under IRC Section 117(d).
- Living stipend portion: Taxable income. Usually no tax is withheld (universities often do not treat this as wages), so the student must set aside money for taxes or make estimated payments.
- Health insurance: If the university provides health insurance as part of the fellowship, the value may or may not be taxable depending on how the plan is structured.
Many graduate students are surprised by their tax bill because no withholding occurs on the fellowship portion. Use the stipend tax calculator and the quarterly tax calculator to estimate what you owe.
How are employer stipends and fringe benefit stipends taxed?
Employers increasingly offer stipends for wellness, commuting, home office setup, professional development, and cell phone usage. Unless a specific IRC exclusion applies, these stipends are taxable wages:
- Wellness stipend: Taxable (no specific exclusion for off-premises gym memberships or fitness programs)
- Home office stipend: Taxable for W-2 employees (the TCJA suspended the home office deduction for employees through at least 2025)
- Professional development: Tax-free up to $5,250 under IRC Section 127 employer educational assistance; taxable above that
- Commuter benefits: Qualified transit and parking up to statutory limits are tax-free under IRC Section 132(f); amounts above the limit are taxable
- Cell phone: If provided primarily for non-compensatory business reasons, tax-free as a de minimis fringe benefit under IRC Section 132(e)
Worked example: PhD student with $35,000 fellowship
A PhD student receives a fellowship package: $15,000 tuition waiver + $20,000 living stipend. No services are required.
| Component | Amount | Taxable? | FICA? |
|---|---|---|---|
| Tuition waiver | $15,000 | No (IRC 117) | No |
| Living stipend | $20,000 | Yes | No (no services) |
| Federal income tax (after standard deduction) | ~$500–$800 | — | — |
The student reports $20,000 on Schedule 1, line 8r. No FICA is due because no services were required. If the university does not withhold tax, the student should make quarterly estimated payments or risk an underpayment penalty.
Illustrative example. Use the 1099 income calculator for detailed estimates.
What about international students and tax treaties?
International students and scholars on F-1, J-1, or similar visas pay U.S. federal income tax on taxable stipend income. The scholarship exclusion for tuition and fees applies equally. However, many countries have bilateral tax treaties with the U.S. that may exempt some or all scholarship/fellowship income from U.S. tax. Common treaties with student provisions include those with China, India, South Korea, Germany, and many others. Check IRS Publication 901 (Tax Treaties) and Publication 519 (U.S. Tax Guide for Aliens) for your country’s specific provisions. Nonresident aliens file Form 1040-NR.
Questions
Stipend tax rules FAQ
Are stipends taxable income?
Generally yes. Most stipends are taxable income. The main exception is scholarship or fellowship amounts used for qualified tuition and required fees at an eligible educational institution by a degree-seeking student. Stipends used for room, board, travel, or living expenses are taxable even if labeled as a scholarship.
Is a fellowship stipend subject to FICA?
No. Fellowship and scholarship stipends paid to students who are not performing services for the institution are not subject to FICA (Social Security and Medicare taxes). However, if the stipend requires work (teaching, research assistance), it becomes wages subject to both income tax and FICA. The distinction is whether the payment is for services rendered or for academic support.
How do I report a taxable stipend on my tax return?
If you received a W-2, report the stipend as wages on Form 1040 line 1. If you received a 1098-T with the stipend amount, or no form at all, report taxable scholarship and fellowship income on Form 1040 line 8r (Schedule 1, line 8r). You do not need a form to report the income; you are required to report it based on the amount received.
Is a housing stipend taxable?
Yes. A stipend designated for housing, room and board, or living expenses is taxable income, even if it is called a scholarship. Only scholarship amounts used for qualified tuition and required course fees at an eligible institution are tax-free. Room, board, and living expenses do not qualify for the exclusion under IRC Section 117.
Do international students pay tax on stipends?
International students on F-1 or J-1 visas generally pay federal income tax on taxable stipends. The scholarship exclusion for tuition and fees applies the same way. However, many countries have tax treaties with the U.S. that may reduce or eliminate tax on certain types of fellowship income. Check IRS Publication 901 for your country's treaty provisions. Nonresident aliens typically file Form 1040-NR.
Is a pastoral or clergy housing stipend taxable?
Ordained ministers can exclude a housing allowance from federal income tax under IRC Section 107, but the allowance is still subject to self-employment tax (Social Security and Medicare). The exclusion is limited to the fair rental value of the home plus furnishings and utilities, or the actual amount spent on housing, whichever is less.
- Sources: IRS Publication 970 (Tax Benefits for Education) · IRC Section 117 · IRS Tax Topic 421 · IRS Publication 901 (Tax Treaties).
- 🔄 Last updated July 31, 2026 · Tax year 2026
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