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.”
