Monday, February 7, 2011

Stop Loss Backpay Compensation, VA Post-9/11 GI Bill Benefits, Taxes, and TurboTax

by 13Stoploss

I would like to formally apologize and thank the United States Government for taxing my Stop Loss Backpay Compensation. Despite being deployed to a combat zone in 2005-2006 for twelve months of my fourteen month involuntary extension, I was wrong to criticize that $800, essentially 80% of the pay received for the two extra non-deployed months ($500 per month x 2 months = $1000; $800 = 80%), had been taken from my Stop Loss Backpay Compensation received in February 2010.

Government, you were right and now I am thankful that this earned income allows me, an unemployed full-time student with three dependents, including an unemployed single-subject-credentialed science teacher for wife, to receive the Earned-Income Tax Credit bringing my tax return to -$241.

Oh, wait.

But on my University 1098-T, my non-taxable, not-supposed-to-be-reported Post-9/11 GI Bill benefits are included in the sum in Box 2. But if I subtract my education benefits, like it says on IRS Publication 970, page 8:

“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.”

I get a completely different and generous positive result.

So does that mean I assume my 1098-T is wrong and that I can make the manual calculation myself And, if I am audited, am I in the wrong for not entering into Box 2 what my 1098-T erroneously says?




Ann B said...

I'm not sure why they withheld taxes on your stop loss payment, but if you were in a combat zone during those 2 months, your $1000 is not taxable. See IRS publication

As far as form 1098-T, this is just in information form filed by the school to report how much you paid in tuition. It is not taxable. It is only used to determine your education credit or deduction. Any amounts reimbursed by the va are not deductible. See IRS pub - Hope this helps!

Anonymous said...

My limited experience with the IRS is that they with hold whenever possible, and then refund, so they can use the money interest free for the duration.
There has got to be somebody out there offering free tax advice for G.I.s!!
I am awfully sorry about the employment situation. That is another stress you don't need. Even in the best of times, school and a new family can be financially difficult. Don't let it grind you down, you guys are smart, hard-working people. It's going to shake down. z

Pattie Matheson said...

Z is right.

Stay positive and explore every possibility. Something will break for you. What about grad school?

Kyle S said...

You might try good old Military One Source. Also, find a local CPA, call them up and explain your situation. I would think to someone like a CPA, that is in the 'know', that is a fairly easy question to answer.

Anonymous said...

Question for any of you who were stop lossed. Did you receive all the money you were entitled to? My husband was stop loss for 14 months, the VA only paid him $1500 (3 months). 9 of those months were in Afghanistan. He is still entitled to about $5500. Did anyone else have this issue?