Do I Owe Taxes on the GI Bill?
When tax season arrives, it is important to check the current filing year’s tax laws to ensure the deductions you’re counting on are still allowed. IRS.gov has pages dedicated to this information, which is subject to change year-to-year. When reading the information below, it’s important to remember that tax laws change frequently, and it’s bad advice to make assumptions about how much to claim on which expenses.
Are Military Education Benefits Taxable?
If you plan to go to college using GI Bill benefits, you might wonder if the GI Bill is taxable. Examining the tax implications of your student financial aid is essential, especially if you hope to claim federal tax credits for your education expenses. The article below is not tax advice; consider this a primer for your own tax research or when discussing your VA benefits with a tax professional.
According to the IRS official site, when you receive some veteran benefits from the Department of Veterans Affairs, you may exclude them from your taxable income:
Education benefits
IRS.gov states, “Don’t include Department of Veterans Affairs (VA) education benefits in your income.”
Disability benefits
- Disability compensation and pension payments to you or your family
- Grants for your home designed for wheelchair living
- Grants for motor vehicles for loss of your sight or use of your limbs
- Benefits under a dependent-care assistance program
Lump-Sum Benefit
Don’t include the 1-time lump-sum disability severance payment from the Department of Defense you received when you separated from the military due to combat-related injuries. The IRS says, “If you already paid taxes on this payment, file an amended return to get a refund.”
A Short List of VA Tax-Free Education Benefits
- Tuition
- Housing stipend
- Fees
- Test fees for licenses and certifications
- Tutoring
- Work-study
- Books
Tax-Free VA Education Benefit Programs
- GI Bill
- Fry Scholarship
- Yellow Ribbon Program
- National Call To Service Program
- Survivors’ and Dependents’ Educational Assistance (DEA) program
Read more: Military and Veteran College Scholarships and Grants
Federal Income Tax Credits And Your VA Education Benefits
Federal income tax credits may be offered based on your education expenses. To claim these credits, subtract VA education benefit payments from your total education expenses (money paid directly to you, not to the school.) The amount the VA pays to the school is what you may claim as deductions.
Learn More About IRS federal income tax rules governing VA benefits and how receiving them may affect your federal tax credits.
Are Student Loans Taxable?
While reasearching this subject some start to wonder if they can be taxed for student loans, but like other types of lending a student loan is not considered income. It may become income if the loan is forgiven without having to be repaid under qualifying circumstances but the act of borrowing itself is not viewed as a form of earning.
Student loan interest may be deductible on your federal taxes. According to IRS.gov, student loan interest may be deductible up to a certain amount.
For example, the IRS official site says, “You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.”
IRS rules stated that it’s possible to claim a student loan interest deduction if all of the following apply:
- You paid interest on a qualified student loan;
- Your filing status isn’t married filing separately;
- Your monthly adjusted gross income is less than a specified amount which is set annually;
- Neither you nor your spouse, if filing jointly, were claimed as dependents on someone else’s return.
Depending on the tax year and any changes to the rules implemented for that year, your experience may vary.
The IRS says you don’t need to itemize deductions in order to claim student loan interest, you simply adjust your income according to guidance current at press time. Tax laws are subject to change at any time, consult a tax professional to learn what’s applicable in the tax year you want to file in.
RELATED: Student Loans for Military Spouses
Free Military Tax Filing Help Is Available
Military members, family members, and veterans may have free help during tax season. If you aren’t sure how to prepare and file your own taxes you may consider using a free resource such as MilTax, offered to qualifying service members and family members. MilTax provides one-on-one assistance from MilTax experts who have training for military-specific tax issues.
RELATED: Free Tax Support for Military Members
RELATED:
- Student Loan Tax Deduction: Everything You Need to Know
- GI Bill for Guard and Reserve
- When Does the GI Bill Expire?
About the author
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.