Maximizing Financial Aid: Tax Verification Tips

1. Bridging the Gap:Verification/Mismatch Codes versusTax Expert Lisanne Masterson Director, Financial Aid Blue Ridge Community College

2. AGENDA • Who Should File? • Verification Items on Tax Transcript • Other Items on Tax Transcript to Check • Issues

3. Resources • FAFSA Verification – IRS Tax Return Transcript Matrix (IFAP.ed.gov) • IRS Publications • 17 • 501 (Exemptions, Standard Deduction & Filing Information) • 519 (Non-residents)

4. Who Should File?

5. Who Should File? • Self-Employed Persons • Required to file if net earnings (excluding church employee income) are $400 or more.

6. Verification – Tax Return Transcript Matrix

7. Use Tax Transcript as Required Verification Document • Adjusted Gross Income • US Income Tax Paid • Untaxed Income • Untaxed pensions • Untaxed IRS distribution • Tax Exempt Interest Income • Education Credits

8. What Else? • Tax Form Used • Tax Filing Status • Wages • Business Income Details

9. W-2 Forms If you have them to verify wages, you must also review untaxed income items in box 12

10. Tax Mismatch Comments • Not necessarily selected for Verification • Occurs when marital status, tax filing status, and wages do not match • MUST resolve

11. Filing Status vs Marital Status • Single - Single • Married Filing Jointly • Married • Separated/Divorced • Married Filing Separately • Married • Separated/Divorced • Head of Household • Married • Separated/Divorced

12. Married & Filing SeparatelySeparated & Filing Jointly • Married & Filing Separately • Cannot use IRS Data Retrieval • IRS Tax Transcripts for each and add the respective line items • Separated & Filing Jointly • Use Tax Transcript to ‘separate’ out items for each based on W-2s, Business Income Statements etc. • Utilize institutional policy on how you ‘re-create’ a new Tax Return for joint items & tax paid.

13. Head of Household • Unmarried or ‘considered unmarried’ • Maintain over 50% costs of primary home • Must have a qualifying dependent that lived with you more than 50% of the year • Refer to IRS Publication 501 for details • CAN be Head of Household if you have a nonresident alien spouse at any time during the year

14. Considered Unmarried On last day of the year, you meet ALL of the following: • File separate return • Paid 50+% costs for maintaining home • Spouse did not live in your home for the last 6 months of the year • Your home was main home for your qualifying dependent • You must claim qualifying dependent as an exemption*

15. When You Have Questions • Considered Conflicting Information • 34 CFR 668.54(a)(2) • “If an institution has reason to believe that an applicant’s FAFSA information is inaccurate, it must verify the accuracy of that information.”

16. When You Have Questions • FSA Handbook, AVG – Discrepant Tax Data • “We have already stated that financial aid administrators to 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 is required to file • What the correct filing status for a person should be, and • That an individual cannot be claimed as an exemption by more than one person.

17. Resolving Issues • Not All Tax Preparers Are Correct • YOU are responsible for ensuring you resolve conflicting data • Request Amended Tax Return • Surprise….amended returns sometimes work in the student’s favor!

18. Questions