It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim wardrobe expenses or whether to deduct a capital loss, you won’t want to miss it.
G Is for GI Bill.
In 1944, President Roosevelt signed into law the Servicemen’s Readjustment Act of 1944 which provided education, work and housing benefits for veterans of World War II. The law has been expanded over the years, and today, we know it more commonly as the GI Bill.
Under the GI Bill and related bills, members of the military who have served Active Duty, Selected Reserve and National Guard Armed Forces may qualify for tuition assistance. Benefits may also be available to family members.
There’s a cap for the cost of educational benefits at a private college, as well as foreign colleges, but generally, the bill may cover the full cost of tuition at a public college in the state of residency. Assistance is also provided for vocational and technical schools as well as other training and licensing programs.
For federal income tax purposes, payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax-free. You may receive a form 1098-T showing these benefits. Do not report these benefits, including GI Bill benefits, as income on your federal income tax return.
Be careful: if you qualify for other tax-favored benefits, like education credits, you may have to reduce the amount of education expenses qualifying for those benefits by part or all of your VA payments. However, this only applies to the part of your VA payments attributable to education expenses.
Here’s a quick example:
Let’s say that you receive a monthly basic housing allowance worth $1,500 as well as $5,000 in tuition assistance payable directly to the college from the VA. Under the law, both of these benefits are tax-free.
You believe that you are also entitled to claim the American Opportunity Credit (AOC). Let’s say that your education expenses totaled $7,500. For purposes of calculating the credit, you have to deduct the portion paid in tuition assistance ($5,000) from the total of your expenses. For purpose of calculating the AOC, you would only claim $2,500 in expenses ($7,500 less $5,000). You would not deduct any of the housing assistance because it was not for education.
If you have specific questions about the GI Bill, you can reach out to the VA directly at 1.888.GIBILL1 (1.888.442.4551).
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