GI Bill benefits and the IRS
Are VA Education Benefits Taxable or Counted as Income?
This question may have been (or will be by mid-April) posed to the school certifying officials recently, mostly in relation to applying for other benefits/entitlements such as food stamps, SSI considerations, etc. From the VA and IRS, the answer is "No." Any veterans’ benefits paid under any law administered by the Department of Veterans Affairs (VA) should not be reported as income to the Internal Revenue Service (IRS). You will not receive a W-2 from the VA.
Per IRS Publication 970:
"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. If you qualify for one or more of the education benefits discussed in chapters 2 through 13*, you may have to reduce the amount of education expenses qualifying for a specific 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.
The link to the entire 970 publication is http://www.irs.gov/pub/irs-pdf/p970.pdf.