With tax season in full swing, the one thing GI Bill users don’t have to worry about is paying taxes on their GI Bill benefits. In fact none of the education benefits for servicemembers, veterans and their families are taxable. In addition, many education related expenses can be used to earn tax credits and or deductions - in some cases education benefits may offset tax credits or deductions. 
New Tax Rules for 2010 Tax Year
The Internal Revenue Service website has some very helpful information concerning special tax benefits for students and parents. According the IRS, under the American Recovery and Reinvestment Act (ARRA), more parents and students will qualify over the next two years for a tax credit, the American Opportunity Credit, to pay for college expenses.
The new credit is a modification of the Hope Credit for tax years 2009 and 2010, which makes the Hope Credit available to a broader range of taxpayers. It now includes required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.
The full credit is available to those whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return.
The IRS has created a “Frequently Asked Questions” page to help explain how you can take advantage of the new tax rules.
