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.
