Do I have to pay taxes on the VA education benefit payments I receive?
No. Payments from all GI Bill programs are tax-free. This is true for you, your dependents, and your survivors.
Tax-free education benefits include:
Tuition
Training fees
Test fees for licenses and certifications
Money to pay for a tutor
Work study
Books
Housing
Please don’t include education benefit payments as income when you file your taxes.
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Will VA education benefit payments affect my tax credits?
Yes. If the tax credits you want to claim are based on your education expenses, you’ll need to subtract your VA education benefit payments from your total education expenses. These are the payments that go directly to you—not to your college.
Example: You get these 2 VA education benefits:
$1,200 a month in a VA basic housing allowance that we deposit into your checking account, and
A $3,500 tuition payment that we pay directly to your college
If you paid $5,000 in deductible education expenses, you can claim the $3,500 that we paid to your college. But you must subtract the $1,200 basic housing allowance that we paid you directly. So you can claim a total of $3,800 in education expenses.
https://www.irs.gov/individuals/tax-exclusion-for-veterans-education-benefits
