GI Bill Benefits and IRS Form 1098‐T Information Sheet BLUF: According to IRS guidance for the 2016 Tax Year, veteran GI Bill benefits are not taxable but when calculating educational expenses (Tuition and Fee Deduction or Education Credits), the amount of educational expenses paid by federal money must be offset. This means that on the IRS Form 1098‐T generated by the university, your GI Bill benefits applied to tuition, books and fees (not BAH) will be listed under Box 5 of the IRS Form 1098‐T. Source documents are below. IRS Pub 970 (from the 2016 IRS Publication 970 page 7) 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 benefits 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 www.gibill.va.gov 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.
(from the 2016 IRS Publication 970 page 13) Adjustments to Qualified Education Expenses
For each student, reduce the qualified education expenses paid by or on behalf of that student under the
following rules. The result is the amount of adjusted qualified education expenses for each student.
Tax-free educational assistance. For tax-free educational assistance received in 2016, reduce the
qualified educational expenses for each academic period by the amount of tax-free educational
assistance allocable to that academic period. See Academic period, earlier.
Some tax-free educational assistance received after 2016 may be treated as a refund of qualified
education expenses paid in 2016. This tax-free educational assistance is any tax-free educational
assistance received by you or anyone else after 2016 for qualified education expenses paid on behalf of a
student in 2016 (or attributable to enrollment at an eligible educational institution during 2016).
If this tax-free educational assistance is received after 2016 but before you file your 2016 income tax
return, see Refunds received after 2016 but before your income tax return is filed, later. If this tax-free
educational assistance is received after 2016 and after you file your 2016 income tax return, see Refunds
received after 2016 and after your income tax return is filed, later.
Tax-free educational assistance includes:
The tax-free parts of scholarships and fellowship grants (see TaxFree Scholarships and Fellowship
Grants in chapter 1);
The tax-free part of Pell grants (see Pell Grants and Other Title IV NeedBased Education Grants in chapter 1);
Employer-provided educational assistance (see chapter 11);
Veterans' educational assistance (see Veterans' Benefits in chapter 1); and
Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational
assistance.
(from the 2016 IRS Publication 970 page 23) Adjustments to Qualified Education Expenses
For each student, reduce the qualified education expenses paid by or on behalf of that student under the
following rules. The result is the amount of adjusted qualified education expenses for each student.
Tax-free educational assistance. For tax-free educational assistance received in 2016, reduce the
qualified educational expenses for each academic period by the amount of tax-free educational
assistance allocable to that academic period. See Academic period, earlier.
Some tax-free educational assistance received after 2016 may be treated as a refund of qualified
education expenses paid in 2016. This tax-free educational assistance is any tax-free educational
assistance received by you or anyone else after 2016 for qualified education expenses paid on behalf of a
student in 2016 (or attributable to enrollment at an eligible educational institution during 2016).
If this tax-free educational assistance is received after 2016 but before you file your 2016 income tax
return, see Refunds received after 2016 but before your income tax return is filed, later. If this tax-free
educational assistance is received after 2016 and after you file your 2016 income tax return, see Refunds
received after 2016 and after your income tax return is filed, later.
Tax-free educational assistance includes:
The tax-free part of scholarships and fellowship grants (see TaxFree Scholarships and Fellowship Grants
in chapter 1);

The tax-free part of Pell grants (see Pell Grants and Other Title IV NeedBased Education Grants
in chapter 1);

Employer-provided educational assistance (see chapter 11);

Veterans' educational assistance (see Veterans' Benefits in chapter 1); and

Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as
educational assistance.
IRS Form 1098‐T (from the 2016 IRS 1098‐T Instruction page 4) Box 5. Scholarships or Grants
Enter the total amount of any scholarships or grants that you administered and processed during the calendar
year for the payment of the student's costs of attendance. Scholarships and grants generally include all
payments received from 3rd parties (excluding family members and loan proceeds). This includes payments
received from governmental and private entities such as the Department of Veterans Affairs, the Department of
Defense, civic, and religious organizations, and nonprofit entities. However, see Exceptions, earlier.
A scholarship or grant is administered and processed by you if you receive payment of an amount, whether by check, cash, electronic transfer, or other means, which you know or reasonably should know is a scholarship or grant, regardless of whether the educational institution is named as payee or co‐payee of the amount and (if a non‐cash payment) regardless of whether the student endorses the check or other means of payment for the benefit of the institution. A Pell Grant is an example of a grant administered and processed by a college or university in all cases. IRS Form 8917 & 8863 (from the 2016 IRS 8917 Instruction page 3 & IRS 8863 Instruction page) 8917 is Tuition and Fees Deduction 8863 is Education Credits (American Opportunity and Lifetime Learning Credits) Adjusted Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student. Tax‐free educational assistance. For tax‐free educational assistance received in 2016, reduce the qualified educational expenses for each academic period by the amount of tax‐free educational assistance allocable to that academic period. See Academic Period, earlier. Tax‐free educational assistance includes: 1. The tax‐free part of any scholarship or fellowship grant (including Pell grants), 2. The tax‐free part of any employer‐provided educational assistance, 3. Veterans' educational assistance, and 4. Any other educational assistance that is excludable from gross income (tax free), other than as a gift, bequest, devise, or inheritance