1098-T with FAFSA and Post 9/11 GI Bill.

[jdalbie94]

So I filled my taxes with a person this year due to a bunch of papers that I never had before and when it got to the school portion, they entered the amount in block 5 which included the amount from the VA and when they deducted the VA Amount the rest was considered taxable income.  I am curious because when the tuition came through, the FAFSA paid whatever amount it could and then the VA Paid the amount (full tuition amount) after and whatever was left over I got refunded but when the tax prep entered it, it was all listed as taxable income so it kind of boned me in the end.  Is there a way to show that the refund came from the VA portion and thus becomes tax free?

[KrisD · Accepted solution]

No, the refund would not be from the VA portion. Any assistance from the VA  needs to be applied to tuition and fees. If you also received a scholarship, and you also received a refund, that refund would be taxed. 

Make sure the 1098-T is reported correctly. Match it to your student account statement. make sure you are getting credit for everything that was paid to the school. 

If the amounts on the 1098-T are reported correctly, Box 1 (What was paid to the school) is subtracted from Box 5 (Tax-free assistance received). If Box 5 is larger, the result is taxable income unless you also purchased books and other school supplies. 

If you got money refunded through the school, that amount (less qualified expenses not paid through the school, like books and supplies) is considered taxable income and reported on your tax return. 

According to the IRS:

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

If you qualify for one or more of the education tax bene-fits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific tax 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 Veterans Administration web-site at https://benefits.va.gov/gibill/  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 (BHA) 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 don't report them on your tax return. You also want to claim an American opportunity credit on your return. Your total tuition charges are $5,000. 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 don't subtract any amount of the BHA because it was paid to you and its use wasn't restricted.”