The short answer is no, these benefits are NOT taxable and should NOT be reported on your tax return as income. If you have done so in the past, you should have your returns amended for additional savings. You should receive a 1098-T showing what the VA paid for.
Excerpt from IRS Publication 970
“Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free.”
To be clear here this means you do NOT claim GI Bill® benefits or other government funded education benefits as income. This also means you cannot take deductions or credits for expenses that are paid with grants or VA benefits.
If you utilized other education benefits, you may have to reduce the amount of expenses qualifying for a specific benefit by part or for all of your VA payments if you qualify for one or more of the education benefits outlined in Chapters 2-12 of IRS Publication 970. The Veterans Administration website can provide additional information concerning these benefits.
Example:
You’re receiving two education benefits.
- $1,500 in monthly Basic Housing Allowance (BAH)
- $4,000 in GI Bill benefits
These benefits are NOT taxable. However, you’re looking to claim a Lifetime Learning Credit on your return and you paid $6,000 in qualified education expenses. The amount you can claim is $2,000. This is calculated as follows:
$6,000 – Qualified education expenses paid
$4,000 – GI Bill benefits received
$2,000 – Amount you can claim ($6,000 less $4,000 in benefits received)
Your Basic Allowance Housing (BAH) does not need to be subtracted because it is not a restricted benefit.
Other education benefits that may fall under this example:
- American Opportunity Credit
- Hope Credit
- Lifetime Learning Credit
- 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
Also, did you know that if you’re a member of the military, you can get free tax filing services? Military OneSource, a service of the Department of Defense, has partnered with H&R Block to offer these free services.
FAQ
Is my 20 year retirement check taxable?
Most military retirement pay (or non-disability retired pay) is subject to withholding of federal income tax. Military retirement pay due to the disability of a combat-related injury typically is not. However, military retired pay is not subject to withholding for Social Security tax.