The short answer is no. According to the Department of Veterans Affairs and the IRS, education benefits – including tuition fees, housing and books – are not taxable, and you do not need to report them on your tax return as income.
“Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax-free,” according to IRS Publication 970, which covers education tax benefits.
This is true regardless of who accesses your benefits – you, your spouse or your children.
If you claimed your GI Bill benefits as income in the past, you may be able to file an amended return.
GI Bill Benefits, Tax Credits and Deductions
GI Bill benefits can affect your tax credits. You should receive IRS Form 1098-T, Tuition Statement, which lists the total tuition and fees you paid, including those covered by your GI Bill benefits.
You can not take deductions or credits for any expenses you pay with grants or VA benefits, according to IRS Publication 970. However, this rule only applies to payments that the VA requires you to use for education expenses.
In other words, you can not claim a credit for fees that the VA pays directly to the school for tuition.
However, you can claim Monthly Housing Allowance (MHA) or Basic Allowance for Housing (BAH) payments that the VA deposits into your bank account.
Here’s an example:
You paid $6,000 in qualified education expenses and received two education benefits:
- $1,500 monthly BAH paid directly to you
- $4,000 paid to the school directly for tuition
Both these benefits are tax-free, so you do not report them as income on your return.
However, they reduce how much of the Lifetime Learning Credit you can legally claim.
You can claim the BAH, because the VA gave it to you to use at your discretion.
However, you can not claim the amount the VA paid directly to the school, as the VA required you to use it for education expenses.
Here’s how you’d calculate your claimable Lifetime Learning Credit in this situation:
$6,000 – Qualified education expenses paid
– $4,000 – GI Bill benefits received that you were required to use for education
$2,000 – Amount you can claim ($6,000 less $4,000 in benefits received)
Again, you do not need to subtract the Basic Allowance Housing (BAH) you received because it is not a restricted benefit.
Your GI bill benefits may also affect these education benefits and tax credits:
- American Opportunity Credit after 2009, or the Hope Credit before 2009.
- Student Loan Interest Deduction
- Student Loan Cancellations and Repayment Assistance
- Tuition and Fees Deduction
- Coverdell Education Savings Account (ESA)
- Qualified Tuition Program (QTP)
- Education Exception to Additional Tax on Early IRA Distributions
- Education Savings Bond Program
- Employer-Provided Educational Assistance
- Business Deduction for Work-Related Education
You can find more information about these on the Department of Veterans Affairs website.
If you have specific tax questions, seek advice from a tax professional who is experienced with filing military tax returns. Reach out to Military OneSource for help finding one near you.
Remember, military members are eligible for free tax filing services through Military OneSource and H&R Block.
FAQ: Are My Scholarships and Grants Taxable?
Scholarships, fellowship grants and need-based grants are generally tax-free, provided you are using the funds to pay for tuition, fees, books and supplies for your program of study, according to the IRS.
However, you must report scholarship and grant money that is used to pay for housing, food, travel or optional equipment as income.
You must also include as income any amounts you receive for services such as teaching or research “required as a condition for receiving the scholarship or fellowship grant,” according to the IRS.
This does not include money received for services required by the Armed Forces Health Professions Scholarship and Financial Assistance Program, or certain work-learning-service programs.
The IRS offers a helpful online interview to help you determine whether your scholarship or grant is taxable. A tax professional can also answer questions about your specific situation.
FAQ: Is My 20-Year Retirement Check Taxable?
According to the IRS, if your military retirement pay is based on age or length of service, it is taxable. That means you must include your pension in your income.
Military retirement pay due to a service-connected injury typically is not taxable. Service-connected disability payments – including compensation and grants for homes or motor vehicles – are separate from your retirement pay. You do not need to include these as income on your return.
The Social Security Administration will not withhold your Social Security benefits either.
When filing your taxes, consider all different forms of income.
If you’re working with a tax accountant, bring them all your paperwork – including your non-taxable VA or Social Security payment information.
It is better for the accountant to tell you what you don’t need to report than it is to accidentally not report income to the IRS.