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Are GI Benefits Considered Income on Your Tax Return?

Updated for Tax Year 2014


OVERVIEW

If you're a service member or a veteran with an honorable discharge, the bill may provide funding to handle some or most of the costs of college. The benefits can add up to thousands of dollars, but they're not taxable, and you do not have to report them as income on your individual income tax return.


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You served your country, now let your country serve you. Since the 1940s, the GI Bill has provided millions of American soldiers with the funding to attend college. If you're a service member or a veteran with an honorable discharge, the bill may provide funding to handle some or most of the costs of college. The benefits can add up to thousands of dollars, but they're not taxable, and you do not have to report them as income on your individual income tax return (Form 1040).

History of the GI Bill

The original GI Bill, officially known as the Servicemen's Readjustment Act, was passed in 1944, despite it being highly controversial. At the time, few people outside the rich or academically gifted went to college, and members of Congress wondered if veterans would fit in. The House and Senate passed different versions, and the bill reconciling the two versions passed by a single tie-breaking vote. Congress revamped the bill in 1984, then again with the "Post 9/11" GI Bill in 2009.

Qualifying for GI Bill benefits

The Post-9/11 GI Bill provides benefits to service members who have been on active duty for 90 days or more since 9/11/01, including Reservists and National Guard members. The service period required is just 30 days if you have a service-related disability.

The benefits increase by tiers, based on the length of your service, and all veterans are eligible, provided they received an honorable discharge.

You can use the benefits for undergraduate and post-graduate study, as well as vocational training, provided it's at a federally approved institution of higher learning.

Benefits for GI Bill recipients

Under the Post-9/11 GI Bill, the U.S. Department of Veterans Affairs (VA) will pay tuition equal to the most expensive public college tuition in the state, and under some circumstances, the government may pay even more.

The bill also provides up to $1,000 for school books and supplies, and a housing allowance the VA pays directly to you. If you're taking classes entirely online, however, you don't get a housing allowance. Some individuals may also qualify for a one-time relocation allowance. None of this is taxable income, so you don't need to mention it on your Form 1040.

Claiming additional education credits

The federal government offers several tax credits for college expenses, including the Lifetime Learning Credit and the Hope Credit, that allow you to deduct a share of your family's college expenses from your taxes, rather than from your taxable income.

The IRS states that your credit will be reduced for any money the GI Bill contributes toward your tuition and college fees. If you pay $5,000 in tuition one year, and the government pays for $4,000, your credit would be based on the $1,000 you paid yourself. Your room and board allowance, however, is separate from these credits.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

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