If you serve or served in the military and are receiving Department of Veterans Affairs (VA) education benefits, the IRS excludes this income from taxation. Publication 970, Tax Benefits for Education, the authoritative source for all education tax matters, covers this tax exclusion. You can learn more about “Veterans’ Benefits” in chapter 1. Read below for a summary of the policy. Requirements 1. You must be serving or have served in the military. 2. You must be receiving VA education benefits. Actions There is no required action for you to receive the exclusion. Provisions Payments you receive for education, training, or subsistence under any law administered by the 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 Publication 970, Tax Benefits for Education, 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. 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. You may want to visit the VA website for specific information about the various VA benefits for education. The Tax Information for Students webpage is an additional resource that provides links to a broader range of student-related tax topics.