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.
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.
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.
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.
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?
@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.