Verification: Beyond the Basics SASFAA 2008 Crystal City, VA

1. Verification: Beyond the BasicsSASFAA 2008Crystal City, VA Marty Carney � Stetson University Kim Jenerette � University of South Carolina-Upstate Elizabeth Milam-Lomas � Clemson University

2. Session Goals To review Verification basics To discuss Verification concepts beyond the basics To introduce some best practices To offer examples of how our schools handle unusual situations To answer your questions

3. Verification Basics Schools must have written policies and procedures on deadlines, notifications and corrections. A Verification Worksheet is not required, but it is the easiest way to collect the information. Schools can use ED�s worksheets, or can develop their own Verification Worksheets.

4. Verification Basics Schools must verify all students who are selected unless they are ineligible for any federal aid except Unsubsidized Stafford or PLUS (but can stop at 30% of applicants). If CPS selects less than 30%, the school is not required to reach 30% (not a quota). Schools can select their own students (but they cannot count in the 30% if using limitation option).

5. Items to be Verified Number in household Number in college Adjusted Gross Income U. S. taxes paid Certain types of untaxed income and benefits: Social Security benefits, child support, and all untaxed income which can be obtained on a federal income tax return

6. Number in Household For a dependent student: Student Parents � If divorced, the parent with whom the student lived more during the past 12 months (if neither, the parent from whom student received the most financial support when last given) Include stepparent if divorced parent has remarried

7. Number in Household For a dependent student (cont.): Parents� other dependent children � if they receive more than half their support from parents OR if they would be considered dependent on a FAFSA Other persons � if they live with AND receive more than half their support from parents for the entire award year Do not include foster children Cannot use grandparents, aunts/uncles, legal guardians as �parents�

8. Number in Household For an independent student: Student Spouse Student�s children � if they receive more than half their support from student Other persons � if they live with AND receive more than half their support from student the entire award year Do not include foster children

9. Number in Household: Verification Exclusions If one of the following applies: Same as reported and verified in the previous award year. Receipt of student�s ISIR within 90 days after the date the application was signed. For dependent students, the Number in Household reported for married parents is three � or two if the parent is single, divorced, separated, or widowed. For independent students, the Number in Household reported for a married student is two � or one if the student is single, divorced, separated, or widowed. See AVG-80 (2007-08) and 34 CFR 668.57(b) and 668.56(a)(3), (b), (c) for complete information.

10. Number in College Include student Do not include parents Include other family members who are attending at least half time AND are degree-seeking AND their school is eligible for federal financial aid Do not include U.S. military academies

11. Number in College: Verification Exclusions If one of the following applies: The reported number enrolled is one (the student only). Receipt of the student�s ISIR within 90 days after the date the application was signed. The family members the student lists are enrolled at least half-time at �your� school and you have confirmed their enrollment through your school�s own records. See AVG-81 and 34 CFR 668.57(c), 668.56(a)(4), (b), (d) for complete information.

12. AGI and Taxes Paid Make sure you collect all returns. Check for appropriate signatures. If tax filers are now separated, determine how your office will calculate individual AGI from joint returns (recalculated versus proportional). Can use tax extension with W-2 forms, IRS Form 4868, or a copy of IRS approval of an extension �beyond� the automatic six month extension; must have follow-up policy to re-verify.

13. Tax Form Issues �FAAs must have a fundamental understanding of relevant tax issues that can considerably affect the need analysis. [FAAs] are obligated to know: ������ -whether a person was required to file a tax return, ����� -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.� 2007-08 AVG-101

14. Tax Filing Requirements

15. Tax Filing Requirements

16. Tax Filing Status Which filing status can be used? Tax filers must determine their marital status as of the last day of the year. SINGLE MARRIED FILING JOINTLY MARRIED FILING SEPARATELY HEAD OF HOUSEHOLD

17. Tax Exemptions Who can be claimed as a dependent? The following tests must be met: The dependent must be a relative or live in household for the entire year. The income of certain dependents cannot exceed threshold. More than half support must be provided by filer. An individual cannot be claimed as an exemption by more than one person (including self).

18. Signature Requirements Form 1040, 1040A or 1040EZ signed by at least one filer E-file printouts (not Form 8453 or 8879) signed by at least one filer A return on which the tax preparer has stamped, typed, signed, or printed his/her name (not company name) and his/her SSN, EIN or PTIN

19. Income Earned from Work This is not a required Verification item, but because it is found on the tax return, it is conflicting data if not corrected. Use positive values only; do not reduce salary (1040 line 7) by business (1040 line 12) or farm (1040 line 18) losses. This is important to calculate the Social Security tax in the EFC formula.

20. Untaxed Income on Tax Return Earned Income Credit Additional Child Tax Credit IRA and Keogh deductions Tax exempt interest Foreign Income Exclusions IRA distributions Pensions Credit for Fuel Tax for non-farmers Nontaxable combat pay (sometimes reported for EIC)

21. Untaxed Income Not on Tax Return Some of these are not required Verification items, but conflicting data must be resolved. Social Security Benefits* � must include benefits for ALL family members if received in the head of household�s name. Ask for SSA-1099 forms for all family members. Sometimes this is on the tax return, but for the tax filer only. Welfare benefits (TANF) Child support received* *Verification Required

22. Untaxed Income Not on Tax Return (Cont.) Housing allowances for clergy or military Non-educational VA benefits (DIC) Worker�s Compensation Combat pay � W-2, Box 12, Code Q � for tax filers only (this is counted in income earned from work for non-filers); sometimes this is on the tax return (Line 66b) for EIC calculations Payments to tax-deferred pensions and savings plans (401K, 403B, etc.) � Ask for W-2 and see Box 12, Codes D,E,F,G,H,S, or Box 5 minus Box 1 � count elective contributions only

23. Not Counted as Untaxed Income Food stamps Subsidized housing Foster Care payments Flexible Spending Accounts (medical or daycare �cafeteria plans�) Non-elective pension contributions (such as state retirement system) Educational VA Benefits (counted as resource instead)

24. Income Exclusions This is not a required Verification item, but because it affects the AGI, it is conflicting data if not corrected. Education Tax Credits from tax return Taxable earnings from FWS Taxable grant and scholarship aid Child support paid

25. Income Exclusions Do not count grant and scholarship aid UNLESS it was reported on tax return. Students do not have to report grants and scholarships on tax return unless aid exceeds tuition, required fees, books and supplies. Reported on the wages/salary line with �SCH.� Do not count child support paid for a child included in the number in household.

26. Correcting, Updating and Adjusting Applicants and FAAs must correct data that was wrong at the time of filing the FAFSA. Applicants and FAAs must update the following data if it has changed since the FAFSA was filed: Number in household and college if selected for Verification and the change is not due to student�s marital status Dependency status if change is not due to student�s marital status FAAs can adjust data through the use of Professional Judgment (PJ).

27. Best Practices Questioning differences in �self-reported� answers on FAFSA vs. Verification Worksheet Define your policy on conflicting information Determine method to resolve conflicts (phone call, clarification form, etc.) Questioning zero or low incomes

28. Best Practices (Cont.) Questioning assets based on interest, dividends, or rental income on tax return Pay attention to Asset Protection Allowance (APA) before questioning To estimate the value of an investment, multiply interest by 10 for a 10% return; multiply by 20 for 5% Questioning business value based on business income on tax Remember businesses with fewer than 100 employees are not counted

29. Best Practices (Cont.) Questioning dependency status for independent-due-to-child if income is too low to reasonably support a dependent Note that the Income Protection Allowance (IPA) for 2008-09 is $6,220 for a family of one and $15,750 for a family of two Questioning separated parents who file married-filing-jointly tax returns for multiple years

30. Case Study 1 Student�s parents are divorced. The father claims the student on his tax return. The student has not lived with either her father or mother in the past 12 months, but most recently lived with her mother. Question: Which parent should be included on the FAFSA?

31. Case Study 1 Answer: You need more information. Since the student did not live with either parent in the past 12 months, she must use the parent who provided the most support in the most recent year she received support. The father may be eligible to claim her as an exemption due to terms of divorce (not necessarily due to providing support).

32. Case Study 2 Student�s parent served in the military in a combat area in 2007 and has untaxed combat pay. Question: Does the parent report the combat pay on the FAFSA, and if so, where?

33. Case Study 2 Answer: *Yes. Where it is reported depends on whether or not parent is a tax filer. Regardless of tax filing, the parent must report the combat pay as income earned from work. If the parent is not required to file a tax return, the combat pay is not reported elsewhere. If the parent is a tax filer, the combat pay is reported as other untaxed income on Worksheet B. * Subject to change in 2009-10.

34. Case Study 3 Both parents submit tax returns filed as Head of Household. Question: Can you accept the tax returns?

35. Case Study 3 Answer: Maybe (unusual, but possible). If the parents were legally separated as of the last day of the calendar year AND living apart for the last six months of the year, they can both file Head of Household. They each had to pay more than half the cost of keeping a home for the year. They cannot use the same child(ren) to claim Head of Household. They must have reconciled.

36. Case Study 4 Student�s grandmother lives with family and receives Social Security benefits in her name. The benefits cover less than half of her support. Question: How do you count the grandmother and her benefits on the FAFSA?

37. Case Study 4 Answer: Count grandmother, but not her income. Because the grandmother lives with and receives more than half her support from the family, she can be counted in the number in household. Her benefits are not reported in untaxed income because she receives them in her name.

38. Case Study 5 Student lives with his girlfriend and they have a child together. The girlfriend provides more than half of the child�s support. Question: What is the student�s dependency status and what is the number in the household?

39. Case Study 5 Answer: It depends� Assuming the student is not independent due to other reasons, he cannot be independent due to the child, because he is not providing more than half support. He would file as a dependent student using parents� household information. If he is independent due to age (or other factors), the number in household is one.

40. Case Study 6 Student lives with mother and stepfather. Stepfather pays child support to another household for his two children. He claims the children on his tax return based on the divorce agreement. Question: Can the student count the stepfather�s children in his number in household?

41. Case Study 6 Answer: Probably no, but it depends on amount of support� If the stepfather�s child support is less than half of his children�s support, the student can claim the child support as an income exclusions on Worksheet C (but cannot include them in his number in household). If the stepfather�s child support is more than half of his children�s support, the student can include them in his number in household (but cannot claim the child support as an income exclusion on Worksheet C).

42. Case Study 7 Student has married parents and a 22-year-old unmarried sister who works and lives independently in another state. Question: What is the student�s number in household?

43. Case Study 7 Answer: Four Unless the sister can answer �Yes� to any question in Step Three of the FAFSA (graduate school, married, dependents, active duty, veteran), she is counted in the household. Support and/or living arrangements are not considered for children who are not independent according to the FAFSA. The person does not have to actually file the FAFSA.

44. Case Study 8 Student filed the FAFSA when his mother was single/divorced. Student was selected for Verification. When he submits his Verification documents, the student�s mother is now remarried. Question: How do you count the stepfather during Verification?

45. Case Study 8 Answer: Count the stepfather, but not his income.* The number in household is an updatable item if the student is selected for Verification, and the change is not due to the student�s marital status. Due to the wording of the federal regulations, updating the income is not allowed as part of Verification. * However, you can strongly consider including the stepfather�s income through the use of Professional Judgment.

46. Essential Resources Current year Application and Verification Guide (AVG) from Federal Student Aid Handbook (www.ifap.ed.gov) IRS Publication 17 (www.irs.gov) Set of current federal tax forms (1040, 1040A, 1040EZ) and tax tables

47. Contact Information Marty Carney: mcarney@stetson.edu Kim Jenerette: kjenerette@uscupstate.edu Elizabeth Milam-Lomas: milamm@clemson.edu