Tax Treatment of Stipends, Awards, Fellowships, and Honoraria

This information is for organizations and individuals working with NOPI’s fiscally sponsored organizations, projects, and programs. Because tax rules are complex and highly fact‑specific, this resource is not legal, tax, or accounting advice. When questions arise, recipients of such payments should consult a qualified tax professional about their specific situation.

Quick Summary

• Stipends are usually taxable income to the recipient.

• Awards and prizes are generally taxable, with limited exceptions.

• Fellowships and scholarships may be partially or fully tax‑free if strict criteria are met.

• Honoraria are taxable compensation for services, even if paid as a one‑time amount.

• Taxability does not depend on whether the payment is called a “grant,” “stipend,” or “award,” but on why it was paid and what the recipient must do in return.

 

General Rule

For federal tax purposes, most payments to individuals are taxable income unless a specific exclusion applies. The IRS looks at the substance of the payment, not the label used.

Key questions include:

• Was the payment made in exchange for services or deliverables?

• Is the recipient required to perform work, teach, research, or report results?

• Is the payment intended to support education or training?

 

Reporting and Withholding

• Form 1099‑NEC: For non‑employee compensation (most stipends, honoraria, and awards)

• Form W‑2: If the recipient is an employee and the payment relates to employment

Withholding

• Federal income tax is not automatically withheld from 1099 payments.

• Recipients are responsible for:

  • Income tax

  • Self‑employment tax, if applicable

• Estimated quarterly tax payments may be required.

 

IRS Sources and References

• IRS Topic No. 421 — Scholarships, Fellowship Grants, and Other Grants
  https://www.irs.gov/taxtopics/tc421
  Explains when scholarships and fellowships are tax-free versus taxable, including exclusions, qualified education expenses, and services requirements.

• IRS Publication 970 — Tax Benefits for Education
  https://www.irs.gov/publications/p970
  Provides detailed guidance on the tax treatment of scholarships and fellowship grants, including taxable portions such as room and board.

• IRS Publication 525 — Taxable and Nontaxable Income
  https://www.irs.gov/publications/p525
  Defines taxable income broadly and covers prizes, awards, stipends, honoraria, and other payments to individuals.

• IRS Interactive Tax Assistant — Scholarships, Fellowships, and Education Grants
  https://www.irs.gov/help/ita/do-i-include-my-scholarship-fellowship-or-education-grant-as-income-on-my-tax-return
  Helps individuals determine whether scholarship or fellowship income must be included on their tax return.

• IRS Interactive Tax Assistant — Prizes and Awards
  https://www.irs.gov/help/ita/is-the-prize-or-award-i-received-taxable
  Determines whether prizes or awards are taxable income under IRS rules.

• Internal Revenue Code § 117 — Qualified Scholarships
  https://www.irs.gov/taxtopics/tc421
  Statutory basis for excluding certain scholarship and fellowship amounts from income (referenced and explained in IRS guidance).

 

Stipends

A stipend is a fixed payment intended to support an individual’s living or participation expenses, often paid on a regular schedule.

Tax treatment

• Generally taxable as ordinary income.

• Taxable even if the stipend is meant to cover housing, meals, or living costs.

• Typically reported on Form 1099‑NEC or Form W‑2, depending on the relationship and facts.

Common misconception

Calling a payment a “stipend” does not make it tax‑free.

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Awards and Prizes

Cash or non‑cash payments given in recognition of achievement, participation, or winning a competition.

Tax treatment

• Generally taxable income to the recipient.

• Includes cash, gift cards, and the fair market value of non‑cash items.

Possible exclusions (limited)

Some awards may be excluded if all of the following apply:

• Given for religious, charitable, scientific, educational, artistic, literary, or civic achievement

• Recipient was selected without action on their part

• Recipient is not required to perform future services

• The award is transferred directly to a qualified charitable organization

These exclusions are narrow and uncommon in practice.

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Fellowships and Scholarships

Payments made to support an individual’s education, training, or study.

Potential tax‑free treatment

A fellowship or scholarship may be partially or fully excluded from income if:

• The recipient is a candidate for a degree at an eligible educational institution, and

• Funds are used for qualified education expenses, such as:

  • Tuition and required fees

  • Required books, supplies, and equipment

Taxable portions

Even when part of a fellowship is tax‑free, amounts used for the following are taxable:

• Room and board

• Travel

• Optional equipment

• Living expenses

Services requirement

If the fellowship requires teaching, research, administrative duties, or other services, the payment is taxable compensation.

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Honoraria

A payment made for a one‑time service where no fee is legally required, such as:

• Speaking at an event

• Serving on a panel

• Reviewing work or participating in a workshop

Tax treatment

• Always taxable income.

• Treated as compensation for services, even if framed as a “thank you.”

• Typically reported on Form 1099‑NEC.

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