FAFSA and Tax Information

Starting with the 2017­–18 Free Application for Federal Student Aid (FAFSA®), the following changes have been put in place:

  • Students are now able to submit a FAFSA® earlier.  Students have been able to file a 2017–18 FAFSA since Oct. 1, 2016, rather than beginning on Jan. 1, 2017. The earlier submission date is a permanent change, enabling students to complete and submit a FAFSA as early as Oct. 1 every year. (There is NO CHANGE to the 2016–17 schedule. The FAFSA became available Jan. 1 as in previous years.)
  • Students now report earlier income information. Beginning with the 2017–18 FAFSA, students are required to report income information from an earlier tax year. For example, on the 2017–18 FAFSA, students (and parents, as appropriate) must report their 2015 income information, rather than their 2016 income information.

The following table provides a summary of key dates for the early FAFSA submission timeframe and reporting of earlier tax information.

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Frequently Asked Questions About the 2017–18 FAFSA®

Browse these questions, and visit the FAFSA: Applying for Aid section of our site to learn more about the FAFSA process.

Are deadlines now earlier?
The federal deadline isn’t earlier, but some state and school deadlines are. Most state and school deadlines haven’t changed, but be aware of this: Several states’ deadlines have changed from “as soon as possible after Jan. 1” to “as soon as possible after Oct. 1.” Find state deadlines on the FAFSA and school deadlines on schools’ websites.

Do I have to apply for admission to a school before I list it on my FAFSA?
No. On your FAFSA, list all the schools to which you have applied or might apply.

Will my 2016–17 FAFSA information be carried over onto the 2017–18 FAFSA?
If you choose the Renewal FAFSA option when you start your application at fafsa.gov, some basic information from your 2016–17 FAFSA will be prepopulated in your 2017–18 FAFSA. However, your tax and income information will not. (Too much could have changed in your life since you filled out the 2016–17 FAFSA.)

Can I choose to report 2016 information if my family’s income has dropped significantly since we filed 2015 taxes?
No. You must report 2015 tax and income information, as the FAFSA requires. If your family’s financial situation has changed dramatically since then, you should complete the FAFSA questions as required, submit the FAFSA, then contact the school you plan to attend and discuss your situation with the financial aid office.

Do I report my 2015 tax and income information on the 2017–18 FAFSA now, and then update it once I’ve filed my 2016 taxes?
No. Do not update after filing your taxes. The 2017–18 FAFSA asks for 2015 tax information.

What if my parents’ (or my) marital status has changed since we filed 2015 taxes? How do we supply tax and income information on the FAFSA?
Here are some tips for this type of situation:

  • The FAFSA asks for marital status “as of today” (the day it’s filled out). So if the student or parent is married now but wasn’t in 2015 (and therefore didn’t file taxes as married), the spouse’s income will need to be added to the FAFSA.
  • Similarly, if the student or parent filed 2015 taxes as married but is no longer married when filling out the FAFSA, the spouse’s income will need to be subtracted.
  • And if the student or parent was married when filing 2015 taxes, then got divorced and is now married to someone else, there’s a bit more math to do: Subtract the ex’s income, then add the new spouse’s income.
  • The help text in fafsa.gov will discuss all these situations.

Will I receive aid offers from schools earlier if I apply earlier?
Not necessarily; some schools will make offers earlier, and others won’t. And keep in mind that an early offer might be an estimated offer, so read communications from schools carefully.

IRS reminds taxpayers to plan in advance if you need tax transcripts

The IRS reminds taxpayers that the fastest way to obtain a copy of his transcription of taxes is requesting it online using the application order transcript at IRS.gov. If you plan in advance, they should receive your transcript in the mail within 5 to 10 days from the moment in which the IRS receives the request online. The IRS continues to work for in a future close reinstate the application capabilities that allow you to view and print online with greater security and maintain the protection of your identity. Meanwhile, taxpayers still can request a copy online through ordering transcript to obtain it by mail.

Requesting IRS Tax Transcript Online

Although taxpayers should always keep a copy of your tax return for your records, you may need some information from tax returns filed for many reasons. This includes applicants for University financial aid or taxpayers who have applied for a loan to buy a house or start a business. If a taxpayer is returning to the University in January and are applying for financial aid, they should check with the Department of financial aid from the University if they will need a copy of your transcript until classes begin. Frequently, students gain the information they need from your tax return in the FAFSA application through IRS Data Retrieval (data recovery tool) tool.

How to Request IRS Transcript Online?

Similarly, if a taxpayer intends to apply for a loan, you should ask your financial institution if a transcript is required so that you can plan ahead and keep it at the right time. The fastest way to obtain a transcript is through the order transcript tool on IRS.gov. Although the IRS has temporarily stopped the option to view and print transcripts online, order transcription still allows taxpayers to request your transcript online and receive it by mail. Taxpayers simply click on the “Get transcript by mail” button to request the printed copy of the transcript and it is sent to your address on file with the IRS. Within the options available:

Contact IRS to Request a Tax Transcript

To request a transcript online and that is mailed by email, visit IRS.gov and use order transcription tool.
To order by phone, call 800-908-9946 and follow the instructions.

IRS Form 4506T-EZ

To request a transcript of the personal tax return by mail or fax, complete the form 4506T-EZ, request for a transcript of an individual income tax return short form. Companies and people who need a transcript of tax bill must use form 4506T request for transcript of tax return.
The IRS will mail you the transcript to the address included in your previous year’s tax return. The transcription that you will receive by mail is an official document. You don’t need to be “certified” as it is the case with other types of documents. If a taxpayer has moved since the last time it filed a tax return to the IRS, you first need to submit a form 8822, change form of address, to ensure that the transcript is sent to the correct address. Form 8822 is another reason why taxpayers should plan in advance.

Applying for Financial Aid and Tax Transcript

If a taxpayer is applying for financial aid, are encouraged to use the data recovery tool on the FAFSA website to easily transfer tax information to your financial aid application. The temporary closure of the tool to order transcripts does not affect data recovery tool. Taxpayers can also click on the FAFSA page for more information.

Tax Transcript for Mortgages

If you are applying for a mortgage, most mortgage companies require only a transcript of tax for income verification purposes. Most of these companies through our program IVES (fast income verification service) and available (with consent of the taxpayer) that a transcript be sent directly to the financial institution. If a taxpayer needs to order a transcript, you must follow the process described above so that it is sent to the address that the IRS has on file.

Getting Tax Transcript Online is Fastest

Remember to order a transcript online is the fastest option. For more information read the datasheet of the IRS how can I get my transcript.

Deducting Qualified Tuition Plan 529 and Coverdell ESA Losses

When the value of a Qualified Tuition Plan (QTP) or Coverdell ESA (CESA) account is less than the unrecovered amount of contributions, the account owner can claim a loss, but only when all amounts from that account have been distributed and the total distributions are less than the unrecovered basis (IRS Pub. 970). Presumably, the loss is computed in accordance with the earnings computation rules, which means that accounts with the same state plan generally must be aggregated. The loss is allowed as a miscellaneous itemized deduction subject to the 2%-of-AGI limit and is disallowed for AMT purposes.

 

How to deduct loss on a 529 plan

If you have a loss on your investment in a QTP account, you may be able to claim the loss on your income tax return. You can claim the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Your basis is the total amount of contributions to that QTP account. You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit.

 

Other issues to consider when deducting a 529 or Coverdell Loss

There may be other issues to consider when terminating an account that has declined in value. For example, it would appear that an account owner who invests in another QTP or CESA within 60 days of terminating the first would be deemed to have made a rollover of the original account, thus preventing him from claiming a loss with respect to the first (since basis carries over to the new account).

 

Account owners of QTPs

Account owners of QTPs may intentionally trigger a loss by closing an account and withdrawing all of the funds in a nonqualified distribution. This may be beneficial since the generous contribution rules for QTPs mean that the plan can quickly be rebuilt. However, the QTP account owner is again potentially subject to the gift tax provisions when reestablishing the accounts.

 

Distributions from more than one QTP

If you have distributions from more than one QTP account during a year, you must combine the information (amount of distribution, basis, etc.) from all such accounts in order to determine your taxable earnings for the year. By doing this, the loss from one QTP account reduces the distributed earnings (if any) from any other QTP accounts.

 

State Tax Consequences of Taking Loss in 529

Withdrawals from a state’s QTP may trigger state tax consequences. Some states require withdrawals not used for qualified education expenses to be included in state taxable income, especially if a state deduction for making the contribution was allowed in a prior year. In addition, some states impose a penalty on nonqualified withdrawals.

1098-T and the American Opportunity Tax Credit AOTC

What information do you need to know in order to claim the American Opportunity Credit or AOTC in 2015? Census data shows that in the last 10 years, college enrollment has gone up to 20 million? So, what does that mean? Lots of potential, eligible students might claim American Opportunity Tax Credit. There are nearly 10 million claims, returns that had American Opportunity Tax Credit on it for tax year 2012, so a lot of people are taking advantage of it. This can provide many benefits for higher education.

 

1098-T and the American Opportunity Tax Credit AOTC

Form 1098-T, Tuition Statement is very important when claiming the AOTIC. Educational institutions are required to give them to students and a copy to IRS. But remember, the form is informational only. It only shows that the student may be eligible for the credit. The 1098- T is the starting point, but – and we’ll talk about it a lot more in a minute – you have to go much further than that.

In tax year ’11, 70 percent of the claims had a Form 1098-T associated with it that IRS had on file. And then in tax year ’12, that percentage went up to 78 percent, so that’s good because we think that shows that things are more accurate on the returns. And what does it also tell you? IRS is checking.

 

Who is Eligible for the American Opportunity Tax Credit AOTC in 2015?

Who is a qualifying student for the American Opportunity Tax Credit? AOTC is for post-secondary education, generally meaning colleges, universities, and vocational schools. Eligible schools are any post-secondary educational institution that is eligible to participate in a student aid program administered by the U.S. Department of Education. The student must attend at least half-time for at least one academic period beginning in the tax year. The easiest way to find out if the student is at least half-time is to check the student’s Form 1098-T, Tuition Statement.

 

Reviewing Form 1098-T

The student must not have completed the first four years of postsecondary education – generally, the freshman, sophomore, junior, and senior years of college. Again, check the Form 1098-T. But, ask when the student started graduate school. If the student was an undergrad for the first part of the year, he or she may still qualify. The student cannot claim the AOTC or the former Hope Credit for more than four tax years. You’ll need to ask about this if your client is not a long-time client. Don’t forget to ask those students who may qualify, but have taken a long break between finishing their degree. And last, the student must not have a felony drug conviction at the end of the tax year.

 

1098-T and the American Opportunity Tax Credit AOTC

Students can’t claim any other education benefit for the same tax year for the same student and the same expense. For example, you can’t take a deduction for a business or employee expense and the AOTC. Another example: you can’t take an education credit at the same time you take a tuition and fees deduction or another credit for the same student. Everything that’s not taxable isn’t considered double-dipping for the education credit. If the expenses are paid from a gift, it’s a win-win for the student. It’s not taxable to the student but can qualify for an education benefit. And expenses paid with money that was inherited, even if the inheritance was not taxable, it can qualify.

 

What Expenses Eligible for American Opportunity Tax Credit?

Basically, all the expenses you are required to pay to take the course, or courses, are eligible for AOTC. This includes tuition, student activity fees that are a required condition of enrollment or of attendance, of course, books and materials necessary to take the course or courses. The books, supplies, or equipment must be necessary, though. For example, a computer: the expense may qualify. It depends on the facts. If it’s necessary because it’s an integral part of the course or is needed as a condition of enrollment or attendance, it’s an expense you can include for AOTC.

 

Expenses that don’t Qualify for AOTC?

Room and board; insurance; medical expenses – including the student health fees – transportation; similar personal, living, or family expenses; expenses for sports, such as games, hobbies, or non-credit courses, except when the course or activity is part of the student’s degree program.  Education credits is one area that your client doesn’t necessarily have to pay the expenses out of their own pocket to claim. The expenses can be paid by you or your spouse, if you file a joint return, or the expenses paid by student are considered as paid by your client if the client claims the student as a dependent. Also, a third party can pay the expenses. It could be a student loan. It could be that grandma pays. It might even be a civic organization that pays for your student.

 

Avoid common AOTC errors

There are several common errors that the IRS sees commonly made when claiming the American Opportunity Tax credit. It is important to avoid claiming the AOTC improperly. The IRS will focus on this area when auditing returns and taxpayers who claim the credit wrongly will have to pay back taxes owed.

 

Claim an AOTC credit for a student that did not attend a college, university or vocational school

AOTC is for post secondary education only that includes colleges, universities, vocational schools. It includes all post secondary educational institutions that are eligible to participate in a student aid program run by the Department of Education. Not all eligible schools participate in the financial aid program. If not listed, the school can answer if it is eligible to participate.

 

Avoid common AOTC errors

The eligible student must have attended at least half time for an academic period. The school determines full time status and the length of an academic period. If the student does not have a Form 1098-T, ask questions to determine how long the student attended, number of courses, what the school considers full time. Ask enough questions until you feel comfortable the student qualifies and let your clients know if the IRS audits them, they need to have documents supporting their claim. See the Forms 866-H-AOC and 866-H-AOC-MAX for examples of the documentation needed. Also available in Spanish, Form 886-H-AOC (SP).

 

Claim a credit for eligible education expenses not paid or not considered as paid

See the Compare Education Credits and Tuition and Fees Deduction chart for information on who is a qualifying student and for expenses paid or considered paid by your client for purposes of the AOTC.

Remember, No Double Benefits Allowed ask how the expenses were paid, was it from a non-taxable grant or scholarship, a qualified tuition plan, etc.

 

Claim a credit for unqualified education expenses

See what are Qualified Education Expenses and for more information on what qualifies and what does not qualify as expenses for Education Benefits.

 

Claim a credit for an eligible student for more than 4 years

AOTC is only available for four years for each eligible student. This includes any year the Hope credit was claimed for the same student.

 

Claim an income deduction for Tuition and Fees on Form 1040, line 34 for the same student.

See No Double Benefits Allowed for more information.

 

More Tips for Avoiding Errors When Claiming Education Tax Credits

  • Complete the Form 8863, Education Credits, answering all questions
  • Verify the information on the Form 1098-T is correct by asking what type of degree or certificate program the student is enrolled in. Ask how long the student has attended a post-secondary school. Ask the student’s enrollment status, undergraduate or graduate. Ask when the student started graduate studies.
  • If the student doesn’t have a Form 1098-T or the Form 1098-T is incorrect, let your clients know if the IRS audits them, they need to have documents supporting their claim. See the Forms 866-H-AOC and 866-H-AOC-MAX for examples of the documentation needed. Also available in Spanish, Form 886-H-AOC (SP).

2015 Student Loan Tax Deduction

A common question for 2015 tax is, can I claim a deduction for paying down my student loan? Absolutely yes!  Make sure you claim your student loan interest payment deductions on your tax return. This can be a very valuable tax break and the net effect is reducing the interest that is paid on student loans.  Taxpayers who owe student loans could actually see a significant amount of money deducted from taxes owed by repaying your student loans.

 

2015 Student Loan Interest Deduction

When filing 2014 taxes, keep an eye out for the Form 1098-E for tax year 2014. This form from your student loan lender will let you know how much interest you’ve paid on interest in student loans. You will use this Form 1098-E to determine how much you can deduct when you file your taxes (up to $2,500 for single filers). You can deduct up to $2,500 in interest paid on a qualifying student loan.

However, not everyone will be able to deduct their student loan interest on their tax returns. The student loan interest deduction begins to phase out if your adjusted gross income (AGI) is:

  • $65,000 if filing single, head of household, or qualifying widow(er)
  • $130,000 if married filing jointly

The deduction is completely phased out if your AGI is:

  • $80,000 if filing single, head of household, or qualifying widow(er)
  • $160,000 if married filing jointly

 

Modified adjusted gross income and Student Loan Deduction

Modified adjusted gross income for the purpose of calculating the student loan interest deduction means adjusted gross income without taking into account any deductions for student loan interest, for tuition and fees, or for domestic production activity; and by adding back any of the following exclusions: the foreign earned income exclusion, the foreign housing exclusion, the foreign housing deduction, and the income exclusions for residents of American Samoa or Puerto Rico.

If you didn’t get a Form 1098-E from your student loan lender, it might mean you paid $600 or less in interest in the past year . You can still claim the student loan interest deduction by putting the amount of interest you paid on your student loans onto your tax return.

 

Income Based Repayment or Income Contingent Repayment Deductions

You can take certain other deductions while on a Income Based Repayment or Income Contingent Repayment plan. you can still take the interest deduction mentioned above, too. According to IRS law, you’re allowed to deduct interest that you paid on qualified student loans regardless of your repayment plan. However, if the federal government ends up forgiving some of your student loan debt due to Federal Student Loan Forgiveness Programs in the future, you’ll have to pay taxes on any amount that is forgiven. This is the tax hit that can occur much farther down the road that student loan borrowers

 

Reference Material Relating to the Student Loan Interest Deduction

 

 

Disallowed American Opportunity Tax Credit (AOTC) IRS Audit

What will happen if someone receives a CP2000 with a proposed assessment of $2,500 + interest?

The notice indicates you claimed the American Opportunity Tax Credit (AOTC) on your return, and the Service is proposing to disallow the credit.

If this is the case, I suggest you review the Form 1098-T from Kaplan University (or contact them if you did not receive one).

Also, have a look here at the eligibility rules for claiming the AOTC. If you don’t meet all the rules, you were not entitles to claim the credit and you will have to repay the credit you claimed, plus interest.

 

Disallowed American Opportunity Tax Credit (AOTC) IRS Audit

If you do meet all the rules, it may be an issue with the employer and how they reported your payments to them in 2012. If you determine the notice is correct and are unable to pay in full by the response due date, you may request a payment plan, called and Installment Agreement (IA). With a balance due of ~$2,600, your minimum monthly payment will be about $37.00. The IA has a one-time user fee of $120. You may qualify for a reduced fee of $43. Failure To Pay (FTP) penalty and interest accrue on the unpaid balance due, so try to make the largest payment you can afford each month.

 

Requesting Direct Debit Installment Agreement (DDIA)

You can choose to request a Direct Debit Installment Agreement (DDIA) on the form by including your checking account RTN and Account number. The fee would be reduced to $52, or the $43.

If your balance due can be paid in 120 days or less by your refund from your 2014 tax return, consider a Full Payment agreement instead of an IA. The Full Payment agreement is a payment plan with no user fee and no fixed monthly payments. After you receive your first notice asking for payment (the CP 2000 is not a bill, and you will receive another notice before the tax and interest is assessed), you can request up to 120 days to pay the balance due, plus the accruals of Failure To Pay (FTP) penalty and interest. During the 120 days, you can make payments at any time, or make one payment on day 120 to complete the agreement. If your 2014 refund pays the balance, you are done.

Investment Income and EITC

The EITC is meant to help taxpayers of modest means support themselves. There are certain limits on the amount of un-earned income or investment income that a taxpayer may have to claim the EITC.

Investment Income and EITC

Income from investments, whether it is dividends, rental properties or inheritance, disqualify you from the EITC if you a have over $ 3,200 in a year. This would most likely be the types of things that are reported on a Form 1099. Other disqualifying income are child support, retirement, Social Security benefits, unemployment benefits and alimony. The benefits received for work in prison do not count toward the credit. There are special EITC rules for members of the military, ministers, members of the clergy and those receiving disability benefits. Find out more about the special EITC rules.

 

Combat Pay Rules for IRS Purposes and EITC

You do not have to report your nontaxable pay you receive as a member of the Armed Forces as earned income for EITC. Examples of nontaxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). The amount of your nontaxable combat pay is on your Form W-2, in box 12, with code Q.

But, you and your spouse can each choose to have your nontaxable combat pay included in your earned income for EITC. Including it as earned income may decrease the amount of tax you owe and may mean a larger refund. Calculate your taxes with the combat pay as earned income and without to find out what’s best for you.

 

Investment Income and EITC

If you make the election, you must include in earned income all nontaxable combat pay you received. You can’t choose to include only a part of the nontaxable combat pay in earned income. That is,

  • You can choose to include all your nontaxable combat pay and your spouse can choose zero
  • You can choose to include zero amount of your nontaxable combat pay and your spouse can choose to include all of it
  • You can both choose to include all your nontaxable combat pay
  • You can both choose not to include your nontaxable combat pay

Some disability retirement benefits qualify as earned income to claim EITC. Also, you may claim a relative of any age who is totally and permanently disabled and fits all other eligibility  requirements.

IRS Information and FAFSA Form for College

Students applying to college and their parents generally need to supply tax information on the FAFSA for financial aid.

 

IRS Information and FAFSA Form for College

The Internal Revenue Service (IRS) is helping to reduce the time spent preparing the Free Application for Federal Student Aid (FAFSA) by the automated access to federal tax Tool IRS Data Recovery. This tool provides the opportunity for applicants to automatically transfer tax data required on the FAFSA.

 

Here are some tips on using the IRS Data Recovery Tool for FAFSA.

  • It is an easy and secure way to access and transfer information from your tax return directly to the FAFSA form, saving time and improving accuracy. In addition, the increased accuracy reduces the likelihood of being selected for verification by the financial aid office.
  • Eligibility Taxpayers wishing to use the tool to complete your FAFSA form 2014 must:
    • have filed a 2012 tax return;
    • have a valid Social Security Number;
    • will have a PIN Federal Student Aid (people who do not have a PIN, you will be given the option of requesting one through the FAFSA application process);
    • not have changed marital status since December 31, 2013.
  • Exceptions If any of the following conditions apply to students or parents, the tool data recovery IRS can not be used for the 2014 FAFSA application:
    • amended tax return was filed for 2013;
    • has not filed a federal tax return for 2013;
    • the filing status of the 2013 tax return is married filing separately;
    • has filed a Puerto Rican or other foreign tax return.
  • Alternatives If the IRS Data Recovery Tool can not be used if the college requires verification of documentation may be required to obtain an official transcript from the IRS. To order transcripts of tax returns or tax bills, visit www.irs.gov and select Order a Transcript (in English) or call toll free 1-800-908-9946.

 

FAFSA by the Data Recovery Tool from the IRS

Besides helping to reduce the time and effort required to complete and submit the FAFSA by the Data Recovery Tool from the IRS, the IRS provides information to save money for college students and their parents.

Tax Tips for Summer Jobs

Taxpayers in high school or college working summer jobs that occur only part of the year should consider several things related to taxes when they are working. Summer jobs are an opportunity for students to learn about the tax system. Let them know you will not take home all the money they earn because your employer must withhold taxes.

 

Here are six things the IRS wants students to keep in mind when starting a summer job.

  1. When you first start a new job you must complete a Form W-4, Withholding Certificate for Employee Permit. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are holding you back an adequate amount of taxes to cover your total income tax obligation.
  2. Whether you’re working as a waiter or a camp counselor, you may receive tips as part of their summer income. All tips you receive are taxable income and therefore are subject to federal income tax. This must be reported on your tax return.
  3. Many students work in various temporary jobs during the summer to earn extra money. Earnings you receive from self-employment – including jobs like babysitting and mowing – are subject to income taxes.
  4. Although you do not earn enough money to pay taxes, probably have to pay self-employment taxes. The employer will withhold taxes from your paycheck. If you have net earnings of $ 400 or more from self-employment, you also have to pay taxes on self-employment. This tax pays for your benefits under the Social Security system that is available to people who are self-employed in the same manner that is available to employees who have taxes withheld from your pay. Taxes on self-employment is calculated on Form 1040, Schedule SE.
  5. The food and accommodation allowances paid to ROTC students participating in advanced training are not taxable. However, the pay for active enforcement – such as pay you received during a summer camp is taxable.
  1. Special rules apply to services you provide as a seller or paperboy. You are treated as self-employed for federal tax purposes if you meet the following conditions:
  • You are in the business of delivering newspapers.
  • All pay you receive for these services directly relates to sales rather than the number of hours worked.
  • You play service delivery under a written contract stating that you will not be treated as an employee for federal tax purposes.

If you do not meet these conditions below, and is under 18 generally is not subject to Social Security tax and Medicare. For more information on withholding tax and self-employment taxes visit the official IRS website at IRS.gov.

Links about Form W-4

  • Form W-4 , Employee’s Withholding Allowance Certificate
  • Form 1040 , Schedule SE, Self-Employment Tax