If I received chapter 35 VA educational benefits do I still file my 1098-T for school?

[Hal_Al]

No.  If your tuition is totally covered by VA benefits, you cannot claim a tuition credit or deduction.  Entering the 1098-T is not mandatory. Leave it off. Trying to enter it, just risks mistakes.

[RayW7]

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.

Although you are not required to enter these payments for education as income, you are also not allowed to claim these payments for any education credit or deduction.

Example:
If you have received a 1098-T from your educational institution you would typically have an amount reported in Box 1 for amounts paid for tuition. If you received the GI Bill you would also have an amount listed in Box 5 under scholarships or grants. If the amount in Box 5 is larger than Box 1, you cannot claim a credit for education such as the American Opportunity Credit or Lifetime Learning Credit. If the amount in Box 5 is less than Box 1, you must reduce Box 1 by the amount in Box 5 and this will be the amount for qualified expenses.

[cpatrick2202]

I honestly wish people that have no idea what Chapter 35 is would not answer these questions.  Chapter 35 is NOT the GI Bill.  There is no benefit within Chapter 35 that is "required to be used for educational expenses".  Chapter 35 payments are the "equivalent" of BHA payments in the GI Bill program.  Most "States" offer a Tuition "waiver" or "reimbursement" for people who are eligible for Chapter 35; but that money does not come to the person "through" Chapter 35 or the VA.  

When discussing the Federal Education Benefits, you would absolutely file the 1098-T the school sends you.  What it will show is all fees and tuition "required to be paid directly to the institution" (Box 1)in order to attend.  It will also show all "grants" and/or "waived" Tuition paid by the State or any other benefit program.  (Box 5)

Most of the time, a Chapter 35 recipient will have a higher number in Box 1 than Box 5 since typically (unless receiving another grant/scholarship) includes the "other than Tuition" fees the school charges (i.e. labs, equipment, insurance of some sort, meal plans, etc...)

In that section of your taxes, you would enter the amounts the school shows in those boxes.  Then, you would enter any "additional eligible expenses" you incurred (i.e. books, etc..) required to attend but not required to be paid directly to the institution.  In my son's case, that would be over $700 (note:  parking/transportation is not an eligible expense).

Then, you will answer "Yes" to the question asking if you participated in a plan run by the VA.  In that section you would enter $0 for the amount of the money you got from the VA that was "required to be used for educational expenses" because the Chapter 35 payments are NOT required to be used for anything in particular.  They can be used for whatever the recipient deems necessary.  The only time you'd enter anything in that box would be if you received a payment from the VA that was SPECIFICALLY REQUIRED TO BE USED FOR AN EDUCATION EXPENSE.  This is usually something existing in GI BILL PAYMENTS FOR TUITION NOT CHAPTER 35 PAYMENTS.

[Brakefastattiffanys]

So.... The VA DEA Administration told me I had to claim my daughter as dependent if she still lived under our roof supported more that 50%, for her to receive the DEA benefits, and for it to not cause issues with my taxes. 

[g0ldEE]

What about a veteran who is using Chapter 31?  This veteran received a 1098-T.  These are approx numbers but it illustrates my question. 

Box 1:  $13.350.00

Box 5:  $15,500.00

Chapter 31 also provides for the books and such.  So, the tuition was a little over $2K less than the reported scholarships.  However, that money was used to pay for the books.  How do we report this, so it doesn't show income to the TP?  

[Hal_Al]

@g0ldEE  I assume the school put the VA benefits in box 5 of the 1098-T (as opposed to the $15,500 be a separate scholarship).

Q. How do we report this, so it doesn't show income to the TP?  

A. Just don't enter the 1098-T. 

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one.

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.

If you do need to enter the 1098-T, there is a place, in the TT interview,  to enter books expenses.

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

[p1shp0sh]

Hello, I have a related inquiry.  If my son receives Chapter 35 VA Education benefits, can I still claim him as a dependent on my own tax return?  He's full time in school.

[Hal_Al]

Q. If my son receives Chapter 35 VA Education benefits, can I still claim him as a dependent on my own tax return?  He's full time in school.

A.  Yes, probably.  

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. 

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. VA benefits would be considered third party support and not as support provided by the student. Scholarships are excluded from the support calculation.
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, if he is under 24 and lives with you, we look at the QC  rules to see if he qualifies as a dependent.  So, it doesn't matter how much he earned. What matters is how much he spent on support. And the VA benefits don't count against you. The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

But if he does not qualify as a QC (he's over 23 or doesn't live with you), then we need to look at the qualifying relative rules and the VA benefits are support, not provided by you. 

A person can still be a Qualifying relative dependent, if not a Qualifying Child, if he meets the 6 tests for claiming a dependent:

1. Closely Related OR live with the taxpayer ALL year
2. His/her gross taxable income for the year must be less than $5050 for 2024). The VA benefits are not counted as income, but they are counted as support not provided by you. 
3. The taxpayer must have provided more than 1/2 his support

In either case:

4. He must be a US citizen or resident of the US, Canada or Mexico
5. He must not file a joint return with his spouse or be claiming a dependent of his own
6. He must not be the qualifying child of another taxpayer

[p1shp0sh]

This is an excellent answer; however, one thing remains unanswered for me.  Your last stipulation says, 

"He must not be the qualifying child of another taxpayer". Qualifying child?  In the circumstances outlined above, you have stated he can be claimed if all the other items are true.  He splits his time between his mother (ex-wife) and myself so technically we both qualify to claim him but of course we have an arrangement and only one of us will. Does this make him a qualifying child of more than one taxpayer? And if so, is that the scenario you're describing?  

[Hal_Al]

He splits his time between his mother (ex-wife) and myself so technically we both qualify to claim him but of course we have an arrangement and only one of us will.

Q. Does this make him a qualifying child of more than one?

A. No. Technically, in your situation, he can only be the qualifying child of one of you. You  cannot just agree on which one of you will claim him, under the QC rules. You have to go to the trouble of arranging his schedule so that he spends more nights with the parent that will claim, that year, so that you can say he lived with you for more than half the year. 

To claim your child, under the qualifying child rules, the child must live with you more than half the year, even if it's just 1 day more.  Otherwise, you can only claim him under the qualifying relative rules. 

How old is the child? In addition to the above, there is a special rule in the case of divorced and separated parents that would allow you to claim him.  But that rule goes away when the child reaches the age of emancipation. 

[p1shp0sh]

He is 21

[SabrinaD2]

If you received Chapter 35 VA educational benefits, you should still go ahead and file your 1098-T. This ensures your return matches what the IRS has and accounts for all fees or scholarships on the 1098-T.

Just keep in mind that you can't claim a tuition credit or deduction for the amounts covered by these benefits. The good news is, VA educational benefits are tax-free and don't need to be included as income on your federal tax return.

For more details, you can refer to the IRS guidelines on tax exclusion for veterans education benefits

[Hal_Al]

Too old for the "special rule".

So, your answer is: if he spent more than half the nights, in 2024, at your home (or you're willing to claim he did), you can claim him as a Qualifying child dependent. 

[p1shp0sh]

Sabrina,

Please read the whole thread before chiming in. I'm not the student.

Hal, but wait.  He's a full time student living in a dorm that a 3rd party pays for.  When he's not at home, he lives here.  Same answer? and thank you!