Understanding Tax Returns in Financial Aid and the Verification process

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Understanding Tax Returns in Financial Aid and
the Verification process
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F. Duane Quinn

• Director of Training and Development
• American Student Assistance (ASA)
• quinn_at_amsa.com

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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 lt 700

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Forms 1040EZ

• Single or married (filing jointly) no
  dependents
• Income only from wages, salaries, tips and lt
  50,000
• taxable interest income lt400.
• Will claim standard deduction

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Forms 1040EZ

• Changes for 2002
• Remove Rate Reduction Credit Line 7
• Earned Income Credit moves to line 8
• Tax paid moves to 10

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Forms 1040A

• Income under 50,000., wages, salary
• Will take standard deduction
• Can get IRA Hope Student loan interest deduction

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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

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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 childs Interest Div...
• Business Rental Trust Partnership

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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

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Forms1040 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)

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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

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Federal Tax Forms and Verification

• Federal tax returns form the backbone of the
  official verification process

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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

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Documents to Collect

• Federal Verification Worksheet or Institutional
  Form
• Appropriate Tax Document
• Original signature copy preparer stamp (copy)
  are all OK
• Other if necessary

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Required Verification Items

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

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Certain Untaxed Income

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

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Required Verification Itemsfrom Tax Returns

• Adjusted Gross Income (AGI)
• U.S. Income Tax Paid
• Some Untaxed Income / Benefits

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Verification Items from Tax Returns
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Remember!!!!!

• Other required verification Items not found on
  IRS forms
• Child Support Recd
• Welfare
• Household size not always exemptions
• Number in college

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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

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Verifying Household Size

• Signed Verification Worksheet
• Institutional Form
• Signed Statement with names ages relationship
  to student

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Household Size (Contd)

• 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

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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