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The generous federal education benefits veterans get through the Post-9/11 GI Bill® and Yellow Ribbon Program clear the way for a successful transition to the civilian workforce. For fully eligible vets, the GI Bill® covers the cost of in-state tuition at public colleges in full. The Yellow Ribbon Program opens the door for vets to attend more expensive private and foreign universities, splitting tuition costs with the VA that exceed the GI Bill® cap of just over $26,000. Other options like the Tuition Assistance and Top-Up programs let service members access those federal benefits early while still on active duty.
Add in all the specialized scholarships and other programs for service members and vets tracked for high-needs fields like teaching and STEM, and you have a diverse and generous set of education benefits that would be the envy of anybody trying to figure out how to cover the skyrocketing cost of college.
And with that generosity comes an added bonus courtesy of the U.S. Department of Veterans Affairs: You get to enjoy all those benefits without any of them coming back to haunt you at tax season.
Under the rules of IRS Publication 970, Tax Benefits for Education, any payments received for educational purposes, be it for training courses, materials, and even housing, are tax exempt. Essentially, if it was administered by the VA for the purpose of education or anything else, it is tax free and should not be included as income on your federal tax returns.
What Do Nontaxable Educational Benefits Include?
If you are eligible for VA educational benefits, you, your dependents, and your survivor’s educational expenses are tax-free. Do not include them as income when you file your taxes.
That means when filing for taxes, you want to exclude the following education benefit payments from your income:
- Money for college or university tuition as well as any additional training fees
- Money provided for additional fees such as licenses or certifications, tests or registration fees
- Money provided for fees associated with your learning such as tutors, work study programs, books, and materials
- Money provided for housing
Money provided for such needs and purchases are considered essential for learning and therefore do not need to be included as part of your income. Nor should they be claimed as a tax credit.
VA Educational Benefits Will Affect Your Tax Credit
If you are receiving educational benefits and claiming them on your taxes as part of your tax credits, you are – in some cases – double-dipping. Something you cannot do.
What you can do, however, is subtract some of the VA educational benefits – the ones that go directly to your college or university – from your total educational costs and claim them as an educational expense.
For example. If you spent $6,000 in deductible education expenses and are receiving two VA Education benefits, one being $1,000 a month for housing that is deposited directly into your personal account and the other a $3,000 Post-9/11 GI Bill® payment that goes directly to the school, you can claim the $3,000 tuition payment on your taxes as it was never paid directly to you. The $1,000 a month, however, must be subtracted, leaving you a total of $5,000 in educational expenses that you can claim on your taxes.
You do not have to claim your educational benefits as part of your taxable income, which means you cannot claim all your benefits as part of your educational expenses. If it is paid to you directly it is not income, nor is it an expense. It is simply and educational benefit.
