If I received chapter 35 VA educational benefits do I still file my 1098-T for school?

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February 5, 2021
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Hal_Al

Employee

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.

p1shp0sh

Hello, I have a related inquiry. If my son receives Chapter 35 VA Education benefits, can I still claim him as a dependent on my own tax return? He's full time in school.

Hal_Al

Employee

Q. If my son receives Chapter 35 VA Education benefits, can I still claim him as a dependent on my own tax return? He's full time in school.

A. Yes, probably.

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
He did not provide more than 1/2 his own support. VA benefits would be considered third party support and not as support provided by the student. Scholarships are excluded from the support calculation.
He lived with the parent (including temporary absences such as away at school) for more than half the year

So, if he is under 24 and lives with you, we look at the QC rules to see if he qualifies as a dependent. So, it doesn't matter how much he earned. What matters is how much he spent on support. And the VA benefits don't count against you. The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

But if he does not qualify as a QC (he's over 23 or doesn't live with you), then we need to look at the qualifying relative rules and the VA benefits are support, not provided by you.

A person can still be a Qualifying relative dependent, if not a Qualifying Child, if he meets the 6 tests for claiming a dependent:

Closely Related OR live with the taxpayer ALL year
His/her gross taxable income for the year must be less than $5050 for 2024). The VA benefits are not counted as income, but they are counted as support not provided by you.
The taxpayer must have provided more than 1/2 his support

In either case:

He must be a US citizen or resident of the US, Canada or Mexico
He must not file a joint return with his spouse or be claiming a dependent of his own
He must not be the qualifying child of another taxpayer

RayW7

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.

cpatrick2202

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.

Brakefastattiffanys

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.