Tax-free GI Bill Benefits

GI Bill recipients get a tax break: no taxes are owed on your GI Bill benefits.

Military service members, veterans, and military families aren't required to pay taxes on any military education benefits from the GI Bill.

What's more, many education-related expenses can earn tax credits or tax deductions for military service members.

AMERICAN OPPORTUNITY TAX CREDIT

According the IRS, under the American Recovery and Reinvestment Act (ARRA), more military parents and students will qualify for the American Opportunity Tax Credit, helping pay for military college expenses.

The American Opportunity Tax Credit, expanded from the Hope Tax Credit, adds required course materials to the list of qualifying expenses. Course materials include books, supplies, and equipment needed for a course of study.

The American Opportunity Tax Credit also expands claimable credit to four years of post-secondary education, rather than a previous allowance for only two years of post-secondary education. Many eligible military families now qualify for the maximum annual credit of $2,500 per student.

ARE YOU ELIGIBLE FOR THE AMERICAN OPPORTUNITY TAX CREDIT?

The American Opportunity Tax Credit is available to military service members who have modified adjusted gross incomes of $80,000 or less, or $160,000 or less for married military couples filing a joint tax return.

Military service members whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot benefit from this tax credit.

Eligible military families can claim the American Opportunity Tax Credit using tax Form 8863, attached to Form 1040 or 1040A.

CALCULATING THE AMERICAN OPPORTUNITY TAX CREDIT

The American Opportunity Tax Credit is based on the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year.