Texas has no income tax. For the IRS, if the grant is a restricted grant (like the cash for clunker award), no tax is owed. The grant is a reduction in purchase price (bargain purchase). If your grant is unrestriced (you can spend the money on anything you want), it is normally considered unearned income - you pay tax but not FICA (no Social Security / Medicare tax). If the grant is for education, it is non-taxable. You pick the school, but you pay it to them. You can't just keep the cash, buy some books, and study on your own. If you did, then the grant would be taxable.