Is military tuition assistance tax free despite receiving a refund/overpayment from the school?

Forum|Forum|5 years ago
February 11, 2021
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For example, Box 1 of 1098-T reports $2000 in expenses but I get the Pell Grant and Military Tuition Assistance (tax free) which totals to about $4500 (box 5 on 1098-T). My school typically sends a refund instead of rolling it over to the next semester ($1500 the difference). Normally this would be added as income, however, when Turbo Tax asks me if any of the income was tax free and I enter in the portion for Military TA it counts it as tax free and only counts the Pell Grant. This results in not paying taxes on the refund by the school or overpayment. Is this correct?

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Hal_Al

Employee

Yes, that is correct.

Military Tuition Assistance is tax free, regardless of what you spend it on. The Pell Grant may or may not be. You must apply the Military money, to tuition, first, ahead of the Pell $.

Example: $2000 tuition, $2500 Military assistance. $2000 Pell grant. You must say the $2000 tuition was all paid by Military $; making the $2000 Pell taxable. You cannot say you paid the tuition with Pell, therefore the Military $ are tax free, because Military assistance is always tax free.