Presentation on theme: "NYSFAAA Verification Striving for Excellence"— Presentation transcript:
1 NYSFAAA Verification Striving for Excellence 2012-2013 Presented by,JoEllen Soucier,Vice President of OperationsProEducation Solutions, LLC
2 Today’s Agenda Are we having fun yet? Verification DefinedComponents of VerificationUsing Tax Transcripts and IRS Data RetrievalPublication 17 – Tax KnowledgeMay Webinar – Brief OverviewVerification RequirementsIdentifying Conflicting Information and Correcting DataCommon ErrorsChanges
3 Verification – Why? Questions to answer: Why do we perform Verification?Difference between Verification and Resolving Conflicting information?What are we expected to know?What information are we required to check?How do we resolve conflicting information?What are common mistakes?How do we handle difficult cases?Verification violations are #7 on the top 10 audit findings and#1 on the top 10 program review findingsSource: U.S. Department of Education – Session C-30
4 Verification – Components Selection(34 CFR ) (AVG-76)CPSInstitutional – Criteria or Known IssuesStudentPJ – Professional JudgmentOutside SourcesAgencyDepartmentTax Knowledge(AVG-103)Publication 17Marital StatusRequired to FileFiling StatusType of Tax ReturnHead of HouseholdVerification Items(AVG-76 – )Household Size and Number in CollegeAGI and Tax PaidEducation Credits and Untaxed IncomeNew Items - SNAP and Child Support PaidNon-tax filer – Income Earned from WorkConflicting Information (AVG- 3, 77, 83, 84, 85, 99, 103, 104,106)Paper or within systemApplicationTaxesQA not exemptReport Suspected FraudOf course, you must document your findings in the student’s file and explain why, not simply assert that, your decision is justified. (AVG-104)
5 Verification Webinar – May 2012 Student Dependency Status - HEA Sec. 480(d)Schools decision to require supporting documentation (other than age)Types of supporting documentationConflicting information must be resolvedHomelessness (AVG-105)If no official documentation can be obtained, documented interview with the student will suffice. This is not a dependency override or PJ.Parent – Who and WhichIFAP – Completing the FAFSASM71 Pages of FAFSA filing instructions with FAQs, examples, and guidance.Priority Order for Divorced or Separated ParentsWhich parent did student live with more during the 12 months preceding FAFSA completion date.If live(d) with neither or both equally, which parent provided more financial support during the 12 months preceding FAFSA completion date.If financial support is exactly 50/50, which parent has the greater income and benefits.Marital Status - FAFSABased on day FAFSA filed – PJ can be used to update (HEA Sec. 475(f)(3), 34 CFR (b)Common-law recognized in Alabama, Colorado, Iowa, Kansas, Montana, New Hampshire, Rhode Island, South Carolina, Texas, Utah, and District of Columbia.Marriage – union between man and woman. Same-sex unions are not considered marriages for federal purposes, including the FAFSA.Tax Marital StatusMarital Status for Tax Filing is determined on December 31stDefinitions – Publication 17State law governs whether married or legally separated under a divorce or separate maintenance decree.All states except Delaware, Florida, Georgia, Mississippi, Pennsylvania, and Texas recognize legal documentation of separation.Dislocated Worker Status (AVG 27-30)Dislocated worker is defined (see 29 U.S.C ) in the Workforce Investment Act of or WIA.Verifying dislocated worker status is not required for under 34 CFRVerification Policies and Procedures (AVG- 76) (34 CFR )Best PracticesPhilosophyThank you -Beth Post-LundquistDianne PepitoneHeather McDonnellMichelle FountaineHoward Leslie
6 CHANGESRequires the processing of all changes and corrections to an applicant’s FAFSA informationEliminates $400 tolerance; replaces with $25 tolerance for any itemMust report all changes, not just those that impact Pell GrantsEliminates the 30% institutional verification capAllows the Secretary to include any item from the FAFSA for possible verificationReplaces the five verification items for all selected applicants with a targeted selection of items based upon each student’s characteristicsQA schools are not exempt from resolving conflicting information.
7 Verification Requirements All Applicants Selected by CPSHousehold SizeNumber in collegeChild Support Paid (if reported)SNAP – Food StampsTax FilersAdjusted Gross Income (AGI)Federal Income Taxes PaidUntaxed IRA DistributionsUntaxed PensionsIRA DeductionsEducation CreditsTax Exempt Interest IncomeNon-Tax FilersIncome Earned From WorkSample verification worksheetsThe worksheets included in this chapter are provided by the Department as samples; you are permitted, but not required, to use them. You may modify them, design your own worksheets, or use someone else’s. Also, you may require other documentation in addition to or instead of a completed worksheet.Do not, however, affix the seal of the Department of Education to any verification documents.Verification before PJIf you use PJ for a student who was selected for verification (by you or the Department), you must complete verification before exercising professional judgment. However, using PJ does not require you to verify a student’s application if he was not selected for verification. If you make a PJ adjustment, you must set the FAA Adjustment flag in FAA Access.Acceptable documentation34 CFRFor application information that is selected for verification in the future, the required documentation will be given in the Federal Register. See DCL GEN for guidance about verifiable information for 2012–2013.Verification regulations34 CFR –61
8 Optional Verification Items Income Earned from Work (tax filers)W2 and 1099 FormsSchedule CSchedule K-11040-Line , 1040A-Line 7, 1040EZ-Line 1Child Support ReceivedSigned Statement or Verification WorksheetCopy of a separation agreement/divorce decree, a statement from child support payer, or copies of cancelled checks.Other Untaxed IncomeHousing, food and other living allowancesWorker’s Compensation or DisabilityUnreported IncomeOther Miscellaneous sources – excluding those listed on the FAFSA instructionsTaxable Earnings from Need-based Employment EarningsW2 formStatement from college or universitySigned StatementTaxable Student Grant and Scholarship AidTax formW2 or 1042-SCombat Pay or Special Combat PayW2Earnings from work under a cooperative education programStatement from college or signed from statement from the studentYou may at your discretion require a student to verify any FAFSA information and to provide any reasonable documentation in accordance with consistently applied school policies. (AVG-76)
9 Common Verification Errors Income Earned from Work – Subtracting a negative business loss on line 12 of from Line 7.Earning information may be on the W-2 forms, or on IRS Form 1040—lines Box 14 (Code A) of IRS Schedule K-1 (Form 1065); on 1040A—line 7; or on 1040EZ—line 1. If any individual earning item is negative, do not include that item in your calculation.Tax Paid figure from the incorrect tax line.Using line 37 of 1040A instead of line 35 or Using line 60 of 140 instead of line 55Using Total Tax Liability TP Figures Per Computer on the 1040 Tax Transcript instead of Income Tax After Credits Per ComputerUsing all amounts on line 12 (a-d) to report tax-deferred pension instead of just codes D, E, F, G, H, and S.Untaxed social security benefits are no longer reported on FAFSA.IRA distribution is not appearing as a rollover, therefore must be reported.Selecting “Eligible to File 1040A” as Yes when there is an amount on lines 10 or 13 of 1040Refunds of State/Local Taxes or Capital Gains or Loss on Tax TranscriptIncluding foster children in household size or parents in number in college.Not questioning Head of Household tax filing status for a married couple. Unresolved marital status conflicts.Education Tax Credit – Adding the refundable amount to the income inclusion.
10 Common Areas of Conflicting Information Household size – Parent(s) listed conflicts with FAFSA reported data or Tax Form(s) submitted. Different parents.Marital Status conflicts with taxes or other documentation provided.Head of Household status conflicts with marital status reported on FAFSA or verification worksheet.Information reported on the FAFSA but not listed on a verification worksheet.Untaxed income conflicts with information on the tax form. Example: An amount appears on line 50 of 1040 (Ret. Sav. Cont.) but no tax-deferred pension is reported as untaxed income.Both Parent and Student claim the student as an exemption on their taxes.Student or parent selected “did not file”Wages requiring taxes to be filed.There are times when you don’t need to verify a student’s application. Except in the case of the student’s death, however, none of the exemptions excuse you from the requirement to resolve conflicting information. (AVG-77)
11 Identifying Conflicting Information All documents collected must be reviewed for conflicting information.A common area where conflicting information arises is through the school’s review of an applicant’s tax return(s).ED refers financial aid administrators to specific pages in IRS Publication 17 as a resource for understanding basic tax law and detecting when conflicting tax information affects Title IV eligibility.Financial aid administrators are required to know:Whether a person was required to file a tax return.What the correct filing status for a person should be.An individual cannot be claimed as an exemption by more than one person.Conflict – Will it have an affect on EFC calculation?34 CFR (f).34 CFR (a)(3).34 CFRFederal Student Aid Handbook, p. AVG-78.
12 Resolving Conflicting Information Marital StatusMarriage Certificate, Divorce Decree, or Statement of SeparationFiling Status or ExemptionsStatement of ConfirmationAmended TaxesUntaxed IncomeWritten Statement, Wage Forms, or Tax SchedulesNumber in CollegeEnrollment ConfirmationWritten StatementHousehold SizeUSA Fund University – Verification – January 31, 2012
13 Correcting Data Verification Tolerance Option Tolerance limit is $25 for each dollar-related item. If any item goes above $25, all items must be corrected.Tolerance option may not be used for non-dollar-related items.regulations now require all corrections to be submitted for applicants receiving subsidized, or need-based, Title IV aid.Federal Register, Vol. 75, No. 209, pRegulations allow schools to update the applicants’ marital status if the change reflects a more accurate picture of their ability to pay or to address an inequity.In such cases where an FAA chooses to update a student's dependency status as a result of a change in the student‘s marital status regardless of whether the student is being verified, all of the information must be consistent with the change to the marital status.Federal Student Aid Handbook (AVG-85)A student’s application might be selected for verification after corrections are submitted and the student has been paid based on the previous unselected CPS transaction. You must verify application before making further disbursements.If verification does not justify aid already disbursed, then the student is responsible for repaying all aid for which he is not eligible, though he may keep any Stafford loan money he received and FWS wages he earned.Changes to FAFSA information (668.59)When there is an over-award from a regular disbursement, the following individual program regulations apply—Pell grants:Perkins and FSEOG: 673.5(f)Subsidized DL: (e)
14 IRS Data Retrieval Tool (DRT) Students and Parent can use the IRS Data Retrieval Tool beginning February 6, 2012.Tax data can be retrieved:2 weeks after filing electronically8 Weeks after filing by paperIRS DRT Online LogicFiling timeframeCompletion - “Already completed”Marital StatusFiling Status (eg. HOH)Dynamic Filtering QuestionsEligible or Ineligible MessageFAFSA Instructions:The easiest way to complete your FAFSA with accurate tax information is by using the IRS Data Retrieval Tool through
15 Unable to use IRS Data Retrieval Tool (DRT) Dynamic Filtering/Logic – Ineligible to use if:Has not file taxesFiled by paper in past 8 weeksFiled electronically in past 2 weeksTax filing status is Married Filing SeparatelyMarried student or parent with Head of Household tax filing statusDivorced, Separated, or Widowed filing a Joint Tax ReturnFiled an Amended Tax ReturnFiled a Puerto Rican or Foreign Tax ReturnVictim of Identity TheftInstructions encourage those who could not use because they haven’t filed or recently filed to go back and retrieve tax data using the online corrections process.s sent by CPS with reminders to go back and use IRS DRT.Ineligible applicants will receive the message, “Based on your response, you are not eligible to transfer your information from the IRS into this FAFSA.”
16 Applicant using IRS DRT IRS DRT used and successfully transferred unchanged will result in an IRS DRT flag = 02Successful DRT flag (02) satisfies the verification of AGI, taxes paid, and other tax data. Wages and other untaxed income (such as tax-deferred pension) is not part of the DRT.Verification RequirementsHousehold Size – Exempt if:Dependent, parents married, and household size = 3Dependent, parent S/D/S/W, and household size = 2Independent, married, and household size = 2Independent, S/D/S/W, and household size = 1Number in College – Exempt if number is 1SNAP BenefitsChild Support PaidWages for non-tax filersIMPORTANT: Updating tax data(such as a blank tax paid to 0)sent for corrections will result ina changed record returning an 04flag – tax transcript will be required.Page 3 of the ISIR –Lower Right Hand Side
17 IRS DRT – Data Flags02 Data Flag – School can waive the requirement of collecting a copy of tax transcript, if selected. However, school can still choose to require student to submit a copy of tax transcript for verification.
18 IRS Tax Transcript Dear Colleague Letter GEN-11-03: Since most applicants can quickly and easily access IRS data through the FAFSA- IRS Data Retrieval process, we no longer consider it reasonable for an institution to accept anything less reliable than direct IRS-supplied evidence for verification of income data. Therefore, if an applicant selected for verification has not successfully transferred information from the IRS, or one who did transfer the information but then changed it, the Department expects the institution to require the applicant, and if necessary the applicant's parents, to provide an official IRS transcript of their Federal income tax information.Acceptable Documentation34 CFR (a) and (d).FR, Vol. 76, No. 134, pagesDear Colleague Letter GENDear Colleague Letter GENPriority Order for Acceptable Documentation (Federal Register 7/13/11):First priority: Unaltered IRS data retrieved by tax filers using FOTW (02 code).Second priority: IRS tax transcript for 2011, if IRS data was not retrieved or if it was retrieved and then changed.Third priority: Signed copy of tax filer’s 2011 federal income tax return, but only if the school determines that obtaining an IRS tax transcript is not possible (documentation).
19 Requesting a Tax Transcript Methods of Requesting:Online using – Results in paper transcript mailed 5-10 daysTelephone Results in paper transcript mailed 5-10 daysIRS Form 4506-T obtained at - Results in paper transcript mailed 5-10 daysOption for allowing the transcript to be sent to a Third PartyThe IRS provides three types of transcripts free of charge:Tax Return Transcript: Provides original answers for most line items on the tax return.Tax Account Transcript: Provides some of the information found on a tax return transcript, along with any adjustments made by the tax filer or the IRS after the original return was filed. Used for amended taxes.Record of Account Transcript: Insufficient for verification purposes.Signature Requirement on the Tax Transcript –GEN stated that collecting signatures on IRS tax transcripts for verification purposes is encouraged, but not required.
20 IRS Tax Transcript Tax Transcript Requirements Identity Theft Victim – Cannot obtain a tax transcriptSchools may, until July 15, 2012, use a signed copy of a 2011 IRS Tax Return as acceptable verification documentation for the award year, the Department of Education (ED) announced Dear Colleague Letter GENLine items reference on the FAFSA and Tax Forms 1040/A/EZ do not appear on the IRS Tax Transcript.Line items on IRS Tax Transcript are identified by name.For verification purposes, it is important to identify the correct line items for comparing the answers on the FAFSA.
21 Amended Tax Return Documentation for Filers that Amend Taxes: IRS Tax Transcript for all filers who amended or required to amend taxesSigned Copy of Form 1040X – Amended Tax ReturnSigned Copies of Original Tax ReturnTax Account Transcript with correct filing status or changes made on 1040XE-Announcement 08/21/12:We have determined that neither an IRS Tax Return Transcript nor an IRS Tax Account Transcript, either individually or together, provide all of the information needed for verification when the tax filer filed an IRS Form 1040X “Amended U.S. Individual Income Tax Return”.Therefore, when an institution is aware that the tax filer filed, or will file, an amended tax return with the IRS, it must obtain signed copies of both the original tax return and the IRS Form 1040X that were filed with the IRS.The institution would use the information from both forms to complete verification.This amended tax return guidance supersedes any prior guidance that we have provided. We will update our Program Integrity Questions and Answers Verification Web site in the near future.
22 Tax ExpertStudent Aid Handbook (AVG-103) - We have already stated that financial aid administrators do not need to be tax experts, yet there are some issues that even a layperson with basic tax law information can evaluate. Because conflicting data often involve such information, FAAs must have a fundamental understanding of relevant tax issues that can considerably affect the need analysis.You are obligated to know:whether a person was required to file a tax return,what the correct filing status for a person should be, andthat an individual cannot be claimed as an exemption by more than one person.AVG-104: For example, an FAA noticing that a dependent student’s married parents have each filed as “head of household” (which offers a greater tax deduction than filing as single or married) must question whether that is the correct filing status. Publication 17 explains on pages 21–23 the criteria a person must meet to file as head of household. Resolution of the conflict may be a reasonable explanation of why there appears to be a conflict but is none, or the parents may re-file and submit a copy of the amended return.
23 IRS Publication 17 Online Location Information Required to file InformationRequired to fileCriteria for filing 1040, 1040A, 1040EZFiling StatusMarried filing joint, Married filing separate, Head of householdMarital StatusExemptionsDescription of forms and schedulesTax TablesWhat’s newMaking work pay credit. The making work pay credit has expired. You cannot claim it on your 2011 return. Schedule M is no longer in use.
24 Working with the Tax Transcript SSN Provided: 432-xx-xxxxTax Period Ending: Dec. 31, 2011FILING STATUS: Married Filing JointFORM NUMBER:CYCLE POSTED:RECEIVED DATE: Apr.15, 2012REMITTANCE:EXEMPTION NUMBER: 4DEPENDENT 1 NAME CTRL: GODWDEPENDENT 1 SSN: XX-XXXXDEPENDENT 2 NAME CTRL: GODWDEPENDENT 2 SSN: XX-XXXXDEPENDENT 3 NAME CTRL:DEPENDENT 3 SSN:DEPENDENT 4 NAME CTRL:DEPENDENT 4 SSN:PREPARER SSN: P00-59-XXXXPREPARER EIN: XXXXXXX
25 Working with the Tax Transcript 1040EZSource: United Student Aid Funds, Inc. 2012
26 Working with the Tax Transcript Source: United Student Aid Funds, Inc. 2012
27 Working with the Tax Transcript 1040Source: United Student Aid Funds, Inc. 2012
28 Working with the Tax Transcript 1040Source: United Student Aid Funds, Inc. 2012
29 Tax Filing StatusMarital Status for Tax Filing is determined on December 31stMarried living with spouse – only 2 choices for filing taxesMarried filing joint or Married filing separatelyNot legally married - must file as Single or HOHHead of Household Definition (Publication 17)You may be able to file as head of household if you meet all of the following requirements.Unmarried or “considered unmarried” on the last day of the yearPaid more than half of the cost of keeping up a home for the yearA “qualifying person” lived in the home for more than half the yearIf “qualifying person” is your dependent parent, he/she does not have to live in home.Considered Unmarried on the last day of the tax year , if:File a separate returnPaid more than half the cost of keeping up your home for the tax yearSpouse did not live in home during last 6 months of the tax yearHome was the main home of child, stepchild, or foster child for more than half the year. Home of qualifying personMust be able to claim an exemption for the childFAA noticing that a dependent student’s married parents have each filed as “head of household” - Must question whether or not there is an incorrect filing status.Publication 17 (pg. 23) – Your girlfriend lived with you all year. Even though she may be your qualifying relative, she is not your qualifying person for head of household purposes because she is not related to you under the tax definition of Relative.
30 Eligible to File 1040A Eligible to file a 1040A or 1040EZ Taxable income is less than $100,000Do not itemize deductionsDo not receive income from real estate, business, farm, or other incomeDo not receive alimonyNot Eligible to file a 1040A or 1040EZItemize deductionsSelf-employedReceive alimonyFile schedule D for capital gains
31 Student Tax DataStudent reporting not required to file a 2011 income tax returnIncome is reported using W-2 forms and other tax or benefit documentsStudent must file federal taxes if:Dependent student claimed by a parent earning more than $5800 or receiving unearned income of more than $950.Independent unmarried student earning more than $9,500.Married filing jointly earning more than$19,000.Students with business income of over $400.Dependent students who are claimed by their parents cannot claim themselves on their taxes. If both claim, student must amend.Dependent students must complete asset information as of the FAFSA filing date. Assets include cash, savings, checking, stocks, bonds, investment property, and trust funds.
32 Household Size Household size (questions 72 and 93) includes: INDEPENDENT STUDENT:Student and his or her spouseStudent’s childrenOther persons who live with and receive more than half their support from the student.DEPENDENT STUDENT:Student and parent(s), even if the student is not living with them.The student’s siblings and children, if they will receive more than half their support from the student’s parent(s) from July 1, 2011, through June 30, 2012.Siblings need not live in the home.Other persons who live with and receive more than half their support from the student’s parent(s) and will receive more than half support for the entire award year.AVG-26: For children in the household size, the “support test” is used rather than residency because there may be situations in which a parent supports a child who does not live with her, such as when the parent is divorced or separated. If the parent receives benefits (such as Social Security payments) in the child’s name, these benefits must be counted as parental support to the child. An exception to this is foster care payments, which typically cover the costs of foster children, who for FSA purposes are not considered children of the foster parents and are not counted in the household size.
33 Household Size Continued… Foster children, who for FSA purposes, are not considered children of the foster parents and are not counted in the household size.To determine whether to include children in your household size, the support test is used (rather than a residency requirement).The parent who provides more than half of the child‘s support may claim the child in his or her household size.If a parent receive benefits (such as Social Security or Temporary Assistance for Needy Families [TANF] payments) in the child‘s name, these benefits are be counted as parental support to the child.Support includes money, gifts, loans, housing, food, clothes, car payments or expenses, medical and dental care, and payment of college costs.The number of family members reported determines the allowance that will be subtracted from the family‘s income to provide for basic living expenses when the Department‘s processor calculates the Expected Family Contribution (EFC).
34 Number in CollegeNumber in College always includes the student, parents are not included.Others who count in the household size are in the number in college if they are or will be enrolled at least half time, in an eligible program, at a school eligible for FSA funds.The definition of half-time enrollment for this question must meet the federal requirements even if the school defines half time differently.Do not include students at a U.S. service academy because most of their primary educational expenses are paid for by the federal government.Military service academies and preparatory schools: U.S. Military Academy (West Point); U.S. Naval Academy (Annapolis); U.S. Air Force Academy; U.S. Coast Guard Academy; U.S. Merchant Marine Academy; U.S. Military Academy Preparatory School; Naval Academy Preparatory School; U.S. Air Force Academy Preparatory School .
35 Child Support Paid and Food Stamps (SNAP) Child Support Paid - Statement signed by the individual.Who paid support, listing the amount paid, the child support recipient, and the name of the child (children) for whom support was paid.If the school believes information to be inaccurate, it must obtain documentation.Verification Worksheet - Checking the Child Support Paid box in Section D or E and signing the worksheet in Section E or F suffices as acceptable documentation for child support paid.Supplemental Nutrition Assistance Program (SNAP)/Food Stamps - Statement signed by the individual.Documentation is a signed statement by the student or parent, as appropriate, affirming the response provided on the FAFSA that someone in the household did receive SNAP benefits in 2010 or Checking the SNAP box in Section D or E and signing the worksheet in Section E or F suffices as acceptable documentation for SNAP benefits (food stamps) unless the school requires additional documentation.
36 Wages–Income Earned from Work Tax Filers – not a required verification item but can be questioned, corrected, or cause conflicting informationNon-Tax Filers – Verify wages with documentationWage StatementsForm W-2Form W-2G – Gambling Winnings1099 SeriesLocation of Wage FiguresW-2 (line 1 or 5)Form 1040–Lines (negative figure on line 12 is treated as 0)Form 1040A-Line 7 and 1040EZ-Line 1IRS Schedule K-1(form 1065)-Box 14 (Code A)
37 Wages and DRT Sharon is an independent student with no dependents HHS = 1 and # in College = 1.Used DRT and ISIR code = 02.School waives tax transcript for all ISIR codes = 02.EFC is 3676.Student self reported wages as 9,600 and all other tax information was retrieved from IRS.Student submitted tax transcript, even though the school didn’t ask for it or require it.Wages, Salaries, Tips, Etc: figure on the tax transcript is $19,226.FAA updated wages to $19,226 and sent for corrections.EFC came back as 3313.Student became eligible for another $300 in Pell (cost of a couple text books).
38 Untaxed IRA Distributions or Pensions IRA Deductions and Payments to Self-Employed SEP, SIMPLE, Keogh, & Other PlansUntaxed Portions of IRA DistributionsUsed IRS Data Retrieval – Data Flag 02Tax Transcript –Total IRA Distributions minus Taxable IRA DistributionsUnable to Obtain Tax Transcript (must be documented)1040 – Line 15a minus 15b1040A – Line 11a minus 11bUntaxed Portions of PensionsTotal Pension and Annuities minus Total Pension/Annuity Amount1040 – Line 16a minus 16b1040A – Line 12a minus 12bIRA Deductions1040 – KEOGH/SEP Contribution Deductions plus IRA Deduction Per Computer1040A – IRA Deduction Per Computer
39 Education Credits & Taxable Grant and Scholarships Education Credits (tax deduction, not tax credit):American Opportunity Tax CreditHope or Lifetime Learning Tax CreditForm 1040-Line 49Form 1040A-Line 31Taxable Grant and Scholarship:Qualified scholarship and fellowship grants are treated as tax-free amounts if the following conditions are met:Candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; andAmounts receive as a scholarship or fellowship grant are used for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.Scholarships or Grants: You must include in gross income amounts used for incidental expenses, such as room and board, travel, and optional equipment, and generally amounts received as payments for teaching, research, or other services required as a condition for receiving the scholarship or fellowship grant. Also you must include in income any part of the scholarship or fellowship that represents payments for services.
40 Tax Exempt Interest, First-time Homebuyer Credit, HSAs Tax-exempt interest incomeCertain types of interest, such as interest on municipal bonds, are tax-exempt.Line 8b on both the 1040 and 1040A.First-time Homebuyer Credit.1040 – Line 67Publication 17 - To claim the first-time homebuyer credit for 2011, must have been a member of the uniformed services or Foreign Service or an employee of the intelligence community on qualified official extended duty outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010.Reported as “Any other untaxed income not reported elsewhere.”Health Savings Accounts (AVG-19)1040 – Line 25. Some thought that they should be excluded from the need analysis just as flexible spending arrangements are, but because HSAs are like tax deferred pension and savings plans, they should be treated similarly.
41 Untaxed Income and Credits NOT Reported Untaxed Social Security Benefits – all untaxed social security benefits are excluded on the FAFSA, including those that appear on the tax form1040–Line 20a minus 20b or 1040A-Line 14a minus 14bCredit for child and dependent care expensesChild tax creditResidential energy creditsEarned income creditAdditional child tax creditAmerican opportunity creditCredit for federal tax on fuels
42 Assets Not a required verifiable item but may be questioned. Applicant/Parent is not required to report assets on FAFSA if quality for simplified formula or automatic 0 EFC:Independent student’s taxable income is $50,000 or less andStudent (and the student’s spouse, if any) is eligible to file a 2011 IRS Form 1040A or 1040EZ or they are not required to file any income tax return orAnyone in the student’s household size (as defined on the FAFSA) received benefits during 2010 or 2011 from any of the designated means-tested Federal programs orStudent (or the student’s spouse, if any) is a dislocated workerDependent student - parents’ taxable income is $50,000 or less andParents are eligible to file a 2010 IRS Form 1040A or 1040EZ or they are not required to file any income tax return orAnyone in the parents’ household size received benefits during 2010 or from any of the designated means-tested Federal programs orEither parent is a dislocated worker
43 SIMPLIFIED FORMULAThe simplified formula is basically the same as the regular formula exceptthat asset information isn’t considered in calculation.A dependent student qualifies for the simplified calculation if:• the parents’ combined AGI (tax filers) or income earned from work (non-filers) was less than $50,000, and• either: (1) the parents were not required to file an IRS Form 1040, (2) one of them is a dislocated worker , or (3) anyone counted in their household size received a means-tested federal benefit in 2010 or 2011.An independent student qualifies for the simplified calculation if:• the student’s and spouse’s combined AGI (tax filers) or income earned from work (non-filers) was less than $50,000, and either: (1) the student and spouse were not required to file an IRS Form 1040, (2) one of them is a dislocated worker , or (3) anyone counted in thehousehold size received a means-tested federal benefit in 2010 or 2011.(AVG-35)AUTOMATIC ZERO EFCThe law also provides for an automatic zero EFC for some students.The CPS will assign a 0 EFC to a dependent student if:• the parents’ combined AGI (tax filers) or combined income earned from work (non-filers) is $23,000 or less, and• either: (1) the parents were not required to file an IRS Form 1040, (2) one of them is a dislocated worker as defined in the WorkforceInvestment Act of 1998, or (3) anyone counted in their household size received a means-tested federal benefit in 2010 or 2011.An independent student with dependents other than a spouse qualifies for 0 EFC if:• the student’s and spouse’s combined AGI (tax filers) or combined income earned from work (non-filers) is $23,000 or less, and• either: (1) the student and spouse were not required to file an IRS Form 1040, (2) one of them is a dislocated worker , or (3) anyone counted in the household size received a means-tested federal benefit in 2010 or 2011.Independent students with no dependents other than a spouse do notqualify for an automatic zero EFC.
44 Applying the Rules to Practice Test Your Knowledge Examples – Q&A Case Study QuestionsReal Life ExamplesQ & A – May WebinarPublication 17Student Aid HandbookTraining
45 Question #1: Household Size & Number in College B. Dependent Student’s Family InformationInclude the name of the college for any household member, excluding your parent(s), who will be enrolled, at least half time in a degree, diploma, or certificate program at a postsecondary educational institution any time between July 1, 2012, and June 30, If more space is needed, attach a separate page with the student’s name and Social Security Number at the top..What is the correct number in household and number in college?A. 7 in household and 4 in collegeB. 6 in household and 3 in collegeC. 6 in household and 2 in collegeD. 5 in household and 1 in collegeFull NameAgeRelationshipCollege or UniversityWill be Enrolled at Least Half TimeMissy Jones (example)18SisterCentral UniversityYesMary Smith19SelfMy Home Town CollegeJohn Smith45FatherMedical SchoolSusan Smith44MotherNoneNoCarrie Smith21Foreign UniversityMichael Smith25BrotherAway City UniversityShawn Smith15Bridgett Coleman12Foster Child
46 Answer to #1: Household Size & Number in College What is the correct number in household and number in college?C. 6 in household size, 2 in college.Foster children, who for FSA purposes are not counted in the household.The applicant is always included in the number in college, but parents are not included.Others who count in the household size are in the number in college if they are or will be enrolled at least half time in an eligible program at a school eligible for any of the FSA programs.Common mistakes – Including foster children in household size. Including parents in number in college.Household size and Number in CollegeStudent assistance general provisions34 CFR (b)34 CFR (c)
47 Household Size & Number in College Follow-up Question Why is the 25 year old brother who is away in college included? Shouldn’t the answer be 5 and 1?Brother is independent and would not be required to list parents on his FAFSA. Should that exclude him from HHS and # in College?No, support test is used not age or college attendance. If parents are providing more than 50% support then you can include in household size and number in college, even if the parents do not claim the person on taxes.School has the option to question and require documentation or a signed statement confirming that the parents are providing more than 50% support. Federal financial aid received by the brother may be included as part of his support.AVG-26See example (bottom left hand corner).Support test used rather than residency.
48 Question #2: Eligible for 1040A George is an independent student who has been selected for verification. He did not use the Data Retrieval tool, therefore has to provide a copy of his tax transcript to the financial aid office. He filed the 1040 and the following lines items appear on the tax transcript:Exemptions…………………………………………………………….. 5Wages, salaries, tips……………………………………………….. 105,000Tax-Exempt Interest…………………………………………….…. 125Taxable IRA Distributions……………………………………….…. 4190Total Income………………..……………………………… ,315Student Loan Interest Deductions………………………… 1,000Adjusted Gross Income…………………………………....….. 108,315Education Credit…………………………………………………… 1,500Standard Deduction…………………………………………….. 11,600Taxable Income……………………………………………………. 78,215Income Tax after credits……………………………………….. 14,400Is George eligible to file a 1040A?A. No, because his total income is above $100,000.B. No, because he itemized deductions.C. No, because he is claiming an IRA distribution.D. Yes.25% answered correctly
49 Answer to #2: Filing Status Is George eligible to file a 1040A?D. Yes.Can use Form 1040A if all of the following apply:Income is only from wages, salaries, tips, IRA distributions, pensions and annuities, taxable social security benefits, taxable scholarship and fellowship grants, interest, ordinary dividends, capital gain distributions, and unemployment compensation.On line 13 “If not required, check here” is checked then they are eligible to file 1040A. If box not checked, then not eligible to file. From the IRS site: “If you have only capital gains distributions and no other capital gains, you may report the figure directly on Form 1040A line 10 or Form line 13 without filling out a Schedule D.”Taxable income is less than $100,000 (not AGI or wages)Taxable Income……………………………………………………. 78,215Adjustments to income are for only IRA deduction and student loan interest deductionDo not itemize your deductionsSome believe the only items that determine 1040A filing status is lines 12, 13, 14, 17, 18, and 40. Some don’t realize there is an income cap and line 13 depends on check box.
50 Question #3: Tax Transcript Meredith completed her FAFSA using the IRS Data Retrieval Tool for both her taxes and her parents’ taxes. IRS DRT Data Flag is 02-Unchanged. Her college does not require the tax transcript for 02 flag. Her mother originally filed as Head of Household and did not list another parent on the verification worksheet. The file was verified as accurate and aid awarded. After receiving the aid package, Meredith’s mother notified the school that she filed incorrectly. She was required to file married because she was remarried last September and resides with her new husband. The parents’ taxes were amended and a new ISIR transaction was received by the school with an IRS DRT Data Flag = 06 for the parent. Does this change require the school to take action on the student’s file? If so, what action is needed?A. The student was packaged on a valid ISIR, therefore no action is required.B. The school must obtain a copy of the student and parents’ tax transcripts, as a result of the change made to the parents’ taxes, and make all appropriate changes.C. The school must obtain a copy of the parents’ tax transcript, 1040X, original tax return, and make appropriate changes. The school can continue to waive the student’s tax transcript requirement because no changes were made to the student’s taxes and the 02 flag remains.D. The school only needs to request a copy of the parents’ account transcript and only verify those items that changed.55% answered correctly
51 Answer to #3: Tax Transcript Does this change require the school to take action on the student’s file? If so, what action is needed?C. The school must obtain a copy of the parents’ tax transcript, 1040X, original tax return, and make appropriate changes. The school can continue to waive the student’s tax transcript requirement because no changes were made to the student’s taxes and the 02 flag remains.06 = IRS data for the student/parent was transferred from the IRS, but a subsequent change made the student/parent ineligible to use the IRS Data Retrieval Tool.AVG-78: If students cannot or will not use IRS Data Retrieval, either at initial FAFSA filing or though the FOTW correction process, they must document AGI, taxes paid, and untaxed income by providing an IRS tax return transcript for the student and spouse or parents, as applicable.E-Announcement 08/21/12: When an institution is aware that the tax filer filed, or will file, an amended tax return with the IRS, it must obtain signed copies of both the original tax return and the IRS Form 1040X that were filed with the IRS.An updated account transcript may be requested to document that the student/parent sent in the 1040X to the IRS for corrections.
52 Question #4: Wages and Untaxed Income Joe is a 28 year old student. He completed the FAFSA and checked off “will not file” taxes. He reported $2800 of income earned from work (wages), $8000 of untaxed income, and $3000 of unreported income. He provided a copy of his W2 with $2,854 in box 1, copy of his unemployment statement with $8,325 total benefits received, and a signed verification worksheet with “did not file taxes” checked off and zero reported on every line item. The college uses the verification worksheet as a source document.What corrections need to be made to Joe’s FAFSA?A. Wages changed to $2854, untaxed income changed to $8325, and unreported income changed to $0.B. Wages changed to $11,179, untaxed income changed to $0, and unreported income changed to $0.C. Changes can’t be made until unreported income reported on the FAFSA has been explained by the studentD. Changes can’t be made until the student files a federal tax return and provides a copy of the tax transcript.80% answered correctly
53 Answer to #4: Wages and Untaxed Income What corrections need to be made to Joe’s FAFSA?D. Changes can’t be made until the student files a federal tax return and provides a copy of the tax transcript.Joe’s total gross income is $11,179. Unemployment is taxable and included as part of gross income.Publication 17:Table Filing Requirements for Most TaxpayersIF your filing status is... THEN file a return if your gross income was at least...**Single under age 65 $ 9,500 **Gross income means all income you received in the form of money, goods, property, and services that is not exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it).
54 Question #5: Optional Data Which verification item is NOT an optional verification data element?A. Income earned from workB. AssetsC. Child support paidD. Child support received58% answered correctly
55 Answer to #4: Optional Data Which verification item is NOT an optional verification data element?C. Child support paidNew required data element forAcceptable documentation to verify:Statement signed by the individual.Who paid support, listing the amount paid, the child support recipient, and the name of the child (children) for whom support was paid.If the school believes information to be inaccurate, it must obtain documentation.Verification Worksheet - Checking the Child Support Paid box in Section D or E and signing the worksheet in Section E or F suffices as acceptable documentation for child support paid.Assets have not been a required verification items for a few years.Income earned from work and child support received are not required for but can be requested/verified.Conflicting information must still be resolved.
56 Question #5: Required Corrections What data must be corrected for the processing year?A. All data that changes the EFC calculation must be sent to the CPS.B. Only those items that have a net difference over $25 need to be corrected on the FAFSA.C. All data corrections must be submitted for applicants receiving subsidized or need-based Title IV aid.D. Only items that effect Pell eligibility.51% answered correctly
57 Answer to #5: Required Corrections What data must be corrected for the processing year?C. All data corrections must be submitted for applicants receiving subsidized or need-based Title IV aid.Pell EFC eligibility changes only are not longer in effect.New tolerance option is $25 for each dollar-related item. If any item goes above $25, all items must be corrected. Cannot use net difference. (AVG-84)Corrections not required if student is eligible for federal unsubsidized aid only.AVG-75 – For all the subsidized aid programs, a school must get a correct valid SAR or ISIR.
58 Question #6: Parent Separation Molly Jones: Dependent StudentMother reported on FAFSA as Divorced/Separated and only one parent’s income data is reportedBoth parents listed on the verification worksheet (VW)Tax transcript received as Married filing Jointly with a letter from mother stating that she separated in January 2012What data must be corrected on the Molly’s FAFSA?A. Marital status is not a required verification item, no action required.B. Parents’ marital status must be changed on the FAFSA to married because both are listed on VW and taxes filed jointly.C. Mother explained separation so no action is needed.D. There is discrepant information that needs to be resolved and documentation needed to support discrepancy clarification.92% answered correctlyQ & A – May Webinar
59 Answer #6: Parent Separation What data must be corrected on the Molly’s FAFSA?D. There is discrepant information that needs to be resolved and documentation needed to support discrepancy clarification.Parent marital status is not a required verification item unless you have conflicting information. If the verification worksheet only listed the mother, then the statement from mother could be enough to resolve the discrepancy between taxes and FAFSA data.School should question whether or not father lives in the household. If so, they cannot be considered separated.How the discrepancy is resolved is up to the school and their policy/philosophy.If the parents reside in a state that recognizes legal separation, then the school can request a copy of the legal separation agreement. All states except Delaware, Florida, Georgia, Mississippi, Pennsylvania, and Texas recognize legal documentation of separation.Some schools require documentation (proof) that the parents maintain separate households by getting copies of utility bills, rental agreements, etc.
60 Question #7: FOTW Skip Trace Logic Jeff Cramer – Completed FAFSA online using FOTW.Jeff did not answer some of the required verification items (like SNAP benefits) and it came back from the CPS as blanks.School cannot determine if the skip logic on the FAFSA caused the question to be skipped or if Jeff just left the question blank.Verification worksheet (VW) was received with information that conflicts with the blanks.What does the school need to do with Jeff’s ISIR data, if anything?A. School should determine if skip logic was used on FOTW and if so, no action is needed.B. School must correct the information that is discrepant by using the VW as a source document or asking for additional clarification.C. All required verification items must be corrected if left blank, even if reported as 0 on the VW.D. Blanks on the ISIR are equal to answering Yes.Q & A – May Webinar
61 Answer #7: FOTW Skip Trace Logic What does the school need to do with Jeff’s ISIR data, if anything?B. School must correct the information that is discrepant by using the VW as a source document or asking for additional clarification.DOE put out an electronic announcement on December 19, 2011 informing practitioners that the Central Processing System (CPS) Web Demonstration site, located at was available for use. Financial Aid Administrators (FAA) can use the demo site to experience the skip logic questions that are being asked of all filers.If the question isn’t answered as a result of “Skip Logic,” then the answer is no.If the SNAP benefits question is blank and the student answered no on the verification worksheet, then you don’t have any conflicting information. If the verification worksheet is yes, then the FAFSA should be updated to yes or additional documentation requested.Skip logic on the FOTW include items such as dependency status (whether or not parental information is required), assets, filing status, and dependent student income questions. The skip logic depends on how the filer answers each question. It is recommended that an FAA use the demo site and answer the questions in different ways to obtain various results. This will help the FAA understand how the skip logic works.
62 Question #8: Not Selected Nelson Harrison– Not selected for verification.His sister, Carrie, is attending same college and was selected for verification.Household information on Carrie’s Verification worksheet (VW) does not match number in household on FAFSA for both Nelson and Carrie. Both applicants reported a different household size.What action is needed for both Nelson and Carrie?A. Household size correction is only required for Carrie. Nelson was not selected for verification so his application does not need corrections.B. Corrections must be made on both Carrie and Nelson’s applications based on Carrie’s VW.C. Carrie’s application can be corrected based on the VW and Nelson’s application must be questioned because conflicting information exists. Both can be questioned if school chooses.D. No action needed for either applicant.Q & A – May Webinar
63 Answer #8: Not SelectedWhat action is needed for both Nelson and Carrie?C. Carrie’s application can be corrected based on the VW and Nelson’s application must be questioned because conflicting information exists. Both can be questioned if school chooses.Any and all conflicting information in a student’s file must be resolved regardless of the student’s selection status. This is very important for all administrators to remember.If a file is reviewed and there is conflicting information for any data element, it must be corrected or resolved. This includes conflicting information that may exist in other aid years, regardless of how old the file may be.If you discover that prior information was incorrect, or may even be the act of fraud, then it must be resolved and either corrected or reported to the appropriate government agency. Conflicting information guidelines can be found throughout the Student Aid Handbook and online at
64 Question #9: Homelessness Hilda Benita – Age 19.Answered Yes to one of the FAFSA homeless questions and No to all other independency status questions.There is no evidence of parents or parental information in the financial aid or admissions office records.What documentation is needed to verify Hilda’s independent status?A. Student must meet with a financial aid administrator to discuss homelessness status.B. No documentation is required. Student is independent based on answering Yes to the question.C. School must ask for the homelessness documentation described in the federal verification guide (AVG).D. Student must provide a written statement of explanation.Q & A – May Webinar
65 Answer #9: Homelessness What documentation is needed to verify Hilda’s independent status?B. No documentation is required. Student is independent based on answering Yes to the question.AVG- Pages104 through 106 provides detailed explanations of homelessness and documentation to support the homeless status.AVG-106 states that “You are not required to verify the answers to the homeless youth questions unless you have conflicting information.”A documented phone call with, or a written statement from, one of the relevant authorities is sufficient verification when needed.“If no official documentation can be obtained, documented interview of the student will suffice. This is not a dependency override or PJ.” (AVG-105)
66 Question #10: HSA Deduction Where is the Health Savings Deduction reported on the FAFSA?A. Other Untaxed Income.B. Money received, or paid on your behalf, not reported elsewhere on this form.C. How much did you earn form working in 2011?D. Payment to tax-deferred pension and savings plans.
67 Answer #10: HSA Deduction Where is the Health Savings Deduction reported on the FAFSA?A. Other Untaxed Income.FAFSA: Other untaxed income not reported in items 44a through 44h, such as workers’ compensation, disability, etc. Also include the first-time homebuyer tax credit from IRS Form 1040—line 67. Don’t include student aid, earned income credit, additional child tax credit, welfare payments, untaxed Social Security benefits, Supplemental Security Income, Workforce Investment Act educational benefits, on-base military housing or a military housing allowance, combat pay, benefits from flexible spending arrangements (e.g., cafeteria plans), foreign income exclusion or credit for federal tax on special fuels.AVG: Health savings accounts (HSAs) resemble tax-deferred pension and savings plans more than flexible spending arrangements; for example, the balance in an HSA persists from year to year, while that in a flexible spending arrangement must be spent on qualified expenses by the end of the year. Therefore, treat taxfree contributions to an HSA as untaxed income.
68 Question #11: Tax Filing Status Savana Cunningham– Dependent Student.Parents reported as married on the FAFSA.Taxes for mother is filed has Head of Household (HOH). Father listed on Verification Worksheet (VW) as did not file.School asked for taxes filed with a correct marital status.Savana provided statement that parents filed correctly because mother is a citizen but father is a nonresident alien.Can Savana’s mother file as head of household because one parent is a nonresident alien?A. No, parents must file taxes correctly like all US citizens.B. They can file as married but do not have to. HOH is an acceptable filing status in this situation.C. Yes, because they cannot file as married due to one parent’s status as a nonresident alien.D. Filing status depends on where the father lives.
69 Answer #11: Tax Filing Status Can Savana’s mother file as head of household because one parent is a nonresident alien?B. They can file as married but do not have to. HOH is an acceptable filing status in this situation.Publication 17:A joint return generally cannot be filed if either spouse is a nonresident alien at any time during the tax year. However, if one spouse was a nonresident alien or dual-status alien who was married to a U.S. citizen or resident alien at the end of the year, the spouses can choose to file a joint return. If you do file a joint return, you and your spouse are both treated as U.S. residents for the entire tax year. For information on this choice, see chapter 1 of Publication 519.If you are a U.S. citizen married to a nonresident alien you may qualify to use the head of household tax rates. Although your nonresident alien spouse cannot qualify you as a head of householdIf your spouse was a nonresident alien at any time during the year and you do not choose to treat your nonresident spouse as a resident alien, then you are treated as unmarried for head of household purposes. You must have another qualifying relative and meet the other tests to be eligible to file as head of household.Nonresident Alien Tax Filing Links:
70 Question #12: Income/Wages Shawn Brown – IndependentSingleNo ChildrenWhat is the amount Shawn reports as “income earned from work” on the FAFSA?A. 114,941B. 107,324C. 89,086D. 110,68462% answered correctly
71 Answer #12: Income/Wages What is the amount Shawn reports as “income earned from work” on the FAFSA?B. 107,324Common Errors –Subtracting Business IncomeTaking figure from Total Income lineIncluding Rent, Estate, or Social Security as wages
72 ChangesCustomized verification – DCL ID: GEN (7/17/12)Verification Tracking FlagsAppearing on ISIRV1 – Standard VerificationV2 – SNAP VerificationV3 – Child Support VerificationV4 – Custom VerificationV5 – Aggregate VerificationNew ItemsHigh School Completion Status(1) High School Diploma(2) Recognized Equivalent of a High School Diploma(3) Home School DocumentIdentity/Statement of Educational PurposeAn applicant must appear in person and present the following documentation to an institutionally authorized individual to verify the applicant’s identity—A valid government-issued photo identification,A signed statement certifying that the Federal student financial assistance received will only be used for educational purposes to pay the cost of attending that institution for the 2013–2014 award year.An institution must maintain, an annotated copy of the identification submitted by the applicant.Source – Federal Register/Vol. 77, No /12/12
73 2013-2014 Changes Verification Tracking Groups FAFSA Information Required to be Verified V1 - Standard Verification GroupTax FilersAdjusted Gross IncomeU.S. Income Tax PaidUntaxed Portions of IRA Distributions or PensionsIRA Deductions and PaymentsTax Exempt Interest IncomeEducation CreditsNumber of Household MembersNumber in CollegeSupplemental Nutrition Assistance Program (SNAP-Food Stamps)Child Support PaidNon-Tax Filers Income Earned from WorkV2 - SNAP Verification GroupSupplemental Nutrition Assistance Program (SNAP-Food Stamps)V3 - Child Support Paid Verification GroupChild Support Paid by the student (or spouse), the student’s parent, or bothV4 - Custom Verification GroupHigh School Completion StatusIdentity/Statement of Educational PurposeSupplemental Nutrition Assistance Program (SNAP-Food Stamps)Child Support PaidV5 - Aggregate Verification GroupTax FilersAdjusted Gross IncomeU.S. Income Tax PaidUntaxed Portions of IRA Distributions or PensionsIRA Deductions and PaymentsTax Exempt Interest IncomeEducation CreditsNumber of Household MembersNumber in CollegeNon-Tax FilersIncome earned from workSource – DCL ID: GEN /17/12
74 Online Resources Suggested Bookmarks: e-CFR – TITLE 34--Education idx?c=ecfr&tpl=/ecfrbrowse/Title34/34cfr668_main_02.tplApplication and Verification GuideInformation for Financial Aid Professionals (IFAP)Publication 17 – Your Federal Income TaxTax Guide for IndividualsIRS Forms and PublicationsTax TranscriptsED - Program Integrity Questions and Answers – Verificationcation.htmlOnline review of conflicting information policies
75 Thank you for attending! Any Questions??you for attending!Contact Information:JoEllen Soucier –