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Understanding Tax Returns in Financial Aid and the Verification process

Understanding Tax Returns in Financial Aid and the Verification process. F. Duane Quinn. Director of Training and Development American Student Assistance (ASA) quinn@amsa.com. Forms: Non-filer. Gross under $ 7850 . and not claimed by another Claimed by parents, but gross less than $ 4700.

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Understanding Tax Returns in Financial Aid and the Verification process

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  1. Understanding Tax Returns in Financial Aid and the Verification process

  2. F. Duane Quinn Director of Training and Development American Student Assistance (ASA) quinn@amsa.com

  3. Forms: Non-filer • Gross under $7850. and not claimed by another • Claimed by parents, but gross less than $4700. • Not owed a refund of withholding • Unearned income < $700

  4. Forms:1040EZ • Single or married (filing jointly); no dependents • Income only from wages, salaries, tips and < $50,000 • taxable interest income <$400. • Will claim standard deduction

  5. Forms:1040EZ • Changes for 2002: • Remove Rate Reduction Credit Line 7 • Earned Income Credit moves to line 8 • Tax paid moves to 10

  6. Forms:1040A • Income under $50,000., wages, salary • Will take standard deduction • Can get IRA; Hope; Student loan interest deduction

  7. Forms:1040A • Changes for 2002: • Removal of Rate Reduction Credit line 30 • Tax paid becomes line 36 • EIC moves to 41 • Additional Child Tax credit moves to 42

  8. Forms:1040 - Must use to….. • Report non taxable interest, dividends, capital gains • Claim Itemized deductions • Claim deductions for: moving expenses, payment of alimony, SEP • Parents reporting child’s Interest & Div... • Business; Rental; Trust; Partnership

  9. New on 1040 for 2002 • New Off-sets to Total Income (Educator and Tuit. And Fee) AGI moves to line 35 • Eliminate Rate Reduction Credit line 47 • Taxes Paid moves to line 55 • Earned Income Credit moves to 64 • Additional Child tax credit moves to 66

  10. Forms:1040 Some Schedules • “A” : Itemized Deductions • “B” : Interest and Dividend Income • “C” or “C-EZ” : Business Profit / Loss • “D” Capitol Gains and Losses • “E” : Supplemental Income (Rental, Partnerships, Trusts)

  11. Forms: Letter 1722 (DO) • Transcript of Tax Information • Request and receive “on the spot” with proper identification. • Acceptable for verification • RTFTP -issued when 1722 not available • Letter 2951C; 8055C; 8059C

  12. Federal Tax Forms and Verification • Federal tax returns form the backbone of the official verification process

  13. Federal Verification • Applications with Conflicting Information • Must resolve all; even if not selected • Verify all selected; but not in excess of 30% of “applicants” • School policy on selection of students to be verified • School policy on definition of “applicants”

  14. Documents to Collect: • Federal Verification Worksheet or Institutional Form • Appropriate Tax Document • Original signature; copy; preparer stamp (copy) are all OK • “Other” if necessary

  15. Required Verification Items • Household Size • Number in College • Adjusted Gross Income • U.S. Income Tax Paid • Certain Untaxed Income / Benefits

  16. “Certain” Untaxed Income • Untaxed Social Security Benefits • Child Support • IRA / Keogh Distributions • Foreign Income Exclusion • Earned Income Credit • Interest on Tax-free Bonds

  17. Required Verification Itemsfrom Tax Returns • Adjusted Gross Income (AGI) • U.S. Income Tax Paid • Some Untaxed Income / Benefits

  18. Verification Items from Tax Returns

  19. Remember!!!!! • Other required verification Items not found on IRS forms: • Child Support Rec’d • Welfare • Household size not always = exemptions • Number in college

  20. Verifying Child Support: • Signed Verification Worksheet • or • Statement signed by Parent and Student • or • Copy of Divorce Decree / Canceled Checks / Statement of non-custodial- or • Not required to verify if same amount as was verified last year

  21. Verifying Household Size • Signed Verification Worksheet • Institutional Form • Signed Statement with names; ages; relationship to student

  22. Household Size (Cont’d) • Not need to verify if: • SAR / ISIR within 90 days of signature • same as verified last year • Married- 3 / Single - 2 • Independent single with HH of 1 or married -2

  23. Verifying Number in College • Signed Verification Worksheet • Signed Institutional Form • Signed Statement with names; ages; institutions • Not Required if: SAR w/in 90 days of signature; Enrolled at your school; number in college is 1

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