GI Bill Benefits for Education

[Bonnie]

Taxpayer feels they should be able to take an education credit for tuition that is paid for with their GI Bill. They tell me they pay for the tuition and then are reimbursed through the GI Bill. I'm thinking they can't use the education credit but another preparer did last year and so now they think they are entitled to it. Just want to make sure I don't overlook something they should be able to take. Any thoughts from others would be appreciated.

[KBTS]

From Pub 970

Veterans' Benefits

Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Do not include these payments as income on your federal tax return.

If you qualify for one or more of the education benefits discussed in chapters 2 through 13, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. This applies only to the part of your VA payments that is required to be used for education expenses.

You may want to visit the Veteran's Administration website at www.gibill.va.gov for specific information about the various VA benefits for education.

Example.

You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BAH) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Neither of these benefits is taxable and you do not report them on your tax return. You also want to claim an American opportunity credit on your return. You paid $5,000 in qualified education expenses (explained in detail in chapter 2). To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. You do not subtract any amount of the BAH because it was paid to you and its use was not restricted.


You might need to get more information from the client to determine if he is talking about BAH or tuition payment directly to the college before you can calculate any credit.

[taxmom34]

i would think it is treated the same as scholarships in that client did not pay out of his own pocket. so, total up all eduction expenses and subtract va benefits.

[AZ-Tax]

Do GI Benefit payments appear anywhere on the form 1098-T?

How does one know the amount of GI Bill payments that were made? Does it appear anywhere on the form 1098-T?

On my ProSeries tax software on 1098-T Wks under Reconciliation of Box 5, Scholarship & Grants....A. Enter portion of box 5 amount from Veteran - or tax free employer-provided assistance.

I believe for the employer, that amount appears on W-2. My client is in the Reserves and receives a W-2 and I don't see anything on the W-2 that would indicate Education paid benefits though it does have under Box 12 instructions, D 14 $500. D represent 401K deduction what the 14 represents is beyond me.

[Bonnie]

The D in box 14 is most likely a contribution to their TSP retirement account. GI Bill benefits do not appear on the W2

[FEDUKE404]

Reporting GI Bill payments

Although my experience with "military" W2s is limited, I've never seen anything on a W2 that in any way related to GI Bill benefits paid. (This would include Box 14 entries.)

Flip side of the coin: Why would someone, no longer in the military but using GI Bill benefits, ever receive a W2 in the first place??

I've had several clients with college ROTC scholarship tuition/fees payments, and those amounts have shown up on Form 1098-T although due to timing of payments it presented a challenge to match the (delayed) payments to the appropriate fees.

One would think GI Bill benefits would also show up on a Form 1098-T ? ? ?

As for the client mentioned in the OP, "they" have a problem as obviously you cannot claim education expenses on your tax returns when said expenses were actually paid by the military. . .

( If I've read the current/always being revised preparer rules correctly, you are professionally obligated to at least make "them" aware of that fact. )

FE

[taxea]

It has been a while and the laws may have changed but to my knowledge the only thing reported on the tax return is the 1099 information because the amount of the schooling is taxable. the client is not out of pocket for the education so how can a credit be taken?

[Burke]

Are you saying the benefit is reported to the recipient as taxable income? See KBTS' post from Pub 970 which states the education benefit is not taxable.