Grants to individuals are generally taxable. Grants are taxed in the same way as wage income and are subject to income tax and municipal tax.
In some cases relevant expenses can be deducted from the grant amount. If the grant paid is higher than the related expenses, the difference is taxable. If the expenses are equal to or higher than the grant, no amount is taxed. Valid receipts for the expenses must always be provided.
Always keep documentation showing the purpose of the grant and how it was used, as this may determine whether the payment is considered taxable.
Please note that expenses may never be deducted from the amount of a grant if no actual cost has been incurred by the recipient. Personal expenses, assets, and other durable goods can never be deducted.
Examples of expenses that are never deductible
Purchase of glasses or hearing aids
Dental treatment
Psychological services and cancer screening
In vitro fertilisation (IVF) and stays at health institutions
Purchase of real estate or vehicles
Purchase of computers, equipment, or other durable goods
Certain types of grants are not considered taxable income, but these are exceptions.
Common grants and applicable guidelines
Below are some examples of common grants and the guidelines that apply to their tax treatment.
Grants from an employer or a trade union to cover the cost of regular participation in sports are tax-exempt up to an amount determined annually in the official tax assessment. Payments exceeding that amount are considered taxable income.
For the year 2026, the sports grant is tax-exempt up to a maximum of 85,000 ISK per year, according to the tax assessment guidelines.
Examples of regular participation in sports:
Training fees
Access to gyms, swimming pools, ski resorts, and golf courses
Sports courses
Personal training
Expenses for equipment or clothing are not covered by this exemption.
Recreational grants paid by municipalities for children’s participation in sports or other past times are not taxable.
Grants for education, courses, or research are considered taxable income. Direct expenses may be deducted from such grants, for example course fees, tuition fees, the purchase of textbooks, or travel expenses related to the studies.
However, personal expenses or expenses for the purchase of equipment, such as a computer, are never deductible.
Commuting grants or payments, paid by an employer to an employee for travel between home and the workplace under a specific agreement on the use of public transport or environmentally friendly modes of transport are not considered taxable income up to an amount determined annually in the official tax assessment. The tax assessment guidelines set out the detailed conditions for this exemption.
For the year 2026, the transport grant is tax-exempt up to a maximum of 138,000 ISK per year for full-time employment, or 11,500 ISK per month, according to the tax assessment guidelines.
Grants paid by trade union sickness benefit funds to cover funeral expenses are considered taxable income and are reported, as applicable, by the surviving spouse or by the estate of the deceased. No deduction is permitted against such grants.
The same applies to funeral grants paid by other parties, for example employers.
Grants for holiday stays or the rental of holiday accommodation are tax-exempt up to an amount determined annually in the official tax assessment. Payments exceeding that amount are considered taxable income.
For the year 2026, grants for holiday stays are tax-exempt up to a maximum of 79,000 ISK per year, according to the tax assessment guidelines.
Adoption grants are considered taxable income. If the grants are paid from an adoption fund in accordance with the law, it is permitted to claim a deduction against the grant. No deduction is permitted if the grant is paid by a party other than the adoption fund.
Strike grants paid by trade unions are considered taxable income and are taxed in accordance with the general rules applicable to wages.
Exceptions from taxation of grants
Certain types of grants are not considered taxable income, but these are exceptions.
Vehicle grants paid by the Social Insurance Administration (TR) to old-age pensioners, disability pensioners, disability benefit recipients, and care allowance recipients are not considered taxable income. Instead, they reduce the acquisition value of the vehicle.
Grants paid to equalize education expenses (equalization grants) are generally not considered taxable income.
Funds collected by individuals or organisations to support a specific individual or family are not considered taxable income. This applies where the collection is based on humanitarian grounds, for example due to illness, accidents, or other unforeseen circumstances.
Grants paid for the rehabilitation of persons with disabilities are not considered taxable income, provided that they are intended to cover expenses related to treatment, training, or other measures that support rehabilitation or increased functional ability.
Grants paid by the organisation Umhyggja to parents and relatives of children with disabilities or chronic illnesses are not considered taxable income. The grants are generally intended to cover additional expenses arising from the child’s circumstances.
Grants paid by the state or municipalities for the purchase of equipment for persons with disabilities are not considered taxable income. This applies only to grants paid in accordance with laws and regulations on assistance to persons with disabilities, and not generally to grants for the purchase of assets.
Grants from the Cultural Heritage Preservation Fund are exempt from income tax. The amount of the grant reduces the acquisition value of the relevant property.
