On March 29, 2024, the Department released an Electronic Announcement (GENERAL-24-28) stating that we were aware of reports concerning inconsistent tax data provided by the IRS on the Institutional Student Information Records (ISIRs) for 2024-25 FAFSA applications. We also informed schools that the Department and the Internal Revenue Service (IRS) were working together to assess the reports, determine any subset of submitted applications that may be affected by the concerns, and identify any system issues in need of resolution.

Together, the Department and the IRS identified three issues that impact a subset of FAFSA forms. The first and second issues may occur for a subset of applicants and their contributors who successfully have federal tax information (FTI) transferred via the IRS FUTURE Act Direct Data Exchange (FA-DDX). The third issue impacts a subset of applicants and their contributors who were required to manually enter their income and tax information. Across these three issues, the Department and IRS estimate that approximately 5% of previously submitted FAFSA applications need to be reprocessed because the errors would result in decreased financial aid eligibility for students if unresolved. The Department plans to reprocess those records as soon as the functionality is available, which we expect in the first half of April. In total, more than 80% of FAFSAs are unaffected by these three tax issues.

This announcement describes in more detail the discrepancies in tax data and how they affect applications submitted to date, plans to address the issues, and guidance to institutions on their options for moving forward, including how institutions can identify FAFSA forms with no known errors, forms institutions can choose or to seek to correct, and forms the Department will reprocess.

The Department recognizes how important it is that schools and states have the information they need to extend financial aid offers and that families have the information they need to make critical education decisions.

The first identified inconsistency involves the data for education tax credits transferred via the FA-DDX prior to March 30, 2024, impacting about 15 percent of FAFSA applications. The IRS has updated the FA-DDX to include the actual reported amounts of education tax credits for any applications submitted moving forward. As described in greater detail below, the Department intends to reprocess FAFSAs when reprocessing is expected to reduce students’ Student Aid Index (SAI) and thereby increase their eligibility for financial aid. Based on preliminary estimates, about 5% of FAFSAs fall into this group.

In addition, in the case of about 10% of FAFSAs, reprocessing would be expected to increase students’ SAI and reduce financial aid eligibility. In that circumstance, institutions may use their professional judgment to decide on a case-by-case basis, whether to proceed with the current ISIRs for FAFSAs when reprocessing is expected to increase students’ SAI and reduce financial aid eligibility, or to request that the Department reprocess any one or more of those FAFSAs. The Department will assume that institutions intend to proceed with the current ISIRs for these students unless institutions initiate an action for the Department to generate a new ISIR transaction. More information on that process will be available in the coming weeks.

The second identified inconsistency involves data for the adjusted gross income (AGI) and filing status. Currently, in cases in which taxpayer information is updated through an amended tax return or other adjustments, the FA-DDX is transferring the most recent AGI and filing status and the original values for other tax return elements.

The IRS plans to update the FA-DDX to include consistent tax data from the taxpayer’s original tax return. After these system changes are implemented, the FA-DDX will not include amended or updated tax information but instead will use original tax data consistent with the methodology used by the Data Retrieval Tool (DRT) for past years of the FAFSA. However, unlike in past years of the FAFSA, under the DRT, the 2024-25 ISIR will not include the flag indicating that an amended tax return was filed.

The Department believes that this issue affected fewer than 2 percent of processed FAFSAs, based on preliminary estimates. The Department intends to reprocess FAFSAs when reprocessing is expected to reduce students’ Student Aid Index (SAI) and thereby increase their eligibility for financial aid. Institutions may use their professional judgment discretion to decide on a case by case basis, whether to proceed with the current ISIR records or to request that the Department generate a new ISIR for one or more of those FAFSAs. The Department will assume that institutions intend to proceed with the current ISIRs for these students unless institutions initiate an action for the Department to generate an updated ISIR transaction.

The Department has previously described its plans to reprocess other FAFSAs, including those for which students’ contributions from assets were calculated incorrectly. Today, it is clarifying that it only intends to reprocess FAFSAs when the corrected data and calculations would reduce students’ Student Aid Index (SAI), increasing their eligibility for financial aid. It expects to begin reprocessing these FAFSAs as soon as the functionality is available, which we expect in the first half of April.

Institutions may use their professional judgment to decide, on a case by case basis, whether to proceed with the current ISIRs for FAFSAs when reprocessing is expected to increase students’ SAI and reduce aid eligibility, or to request that the Department generate an updated ISIR transaction for one or more of those FAFSAs. The Department will assume that institutions intend to proceed with the current ISIRs for these students unless institutions initiate an action for the Department to generate an updated ISIR transaction. More information on that process will be available in the coming weeks.

The Department’s top priority is to help schools make aid offers to students as soon as possible. Accordingly, it seeks to help schools identify which ISIRs are accurate and which ISIRs the Department intends to reprocess in the coming weeks. The Department expects that schools can move forward with packaging aid offers for over 80% of previously-submitted FAFSA applications – as those records are not affected by the previously-described issues.

As soon as possible, the Department will release a list of Universally Unique Identification Numbers (UUIDs) corresponding to the FAFSAs that it does not intend to automatically reprocess. These records are unaffected by the issues described in this letter or other issues summarized in the Technical Frequently Asked Questions and Known Issues documentation. Schools and state agencies may reference this list to identify the students for whom they have accurate information on which to base aid calculations and offers. Additional information about this list will be included with its release. In addition, the Department will release a set of criteria institutions could alternatively use to run a query to identify unaffected records, if that would be preferable to leveraging the list of UUIDs.

In the coming days, the Department will also identify ISIRs that are affected by the issues described above, but does not plan to reprocess, because doing so would result in lower financial aid eligibly for students. Institutions may use their professional judgment to decide on a case-by-case basis, whether to proceed with the current ISIRs for FAFSAs when reprocessing is expected to increase students’ SAI and reduce aid eligibility, or to request that the Department reprocess any one or more of those FAFSAs. The Department will assume that institutions intend to proceed with the current ISIRs for these students unless institutions initiate an action for the Department to generate an updated ISIR transaction.

The third identified inconsistency has to do with inaccurate instructions on the FAFSA form. The Department has determined that the written instructions on the FAFSA form for applicants who are manually entering their income taxes paid are inconsistent with the data transferred from the IRS through the FA-DDX process. Specifically, the FAFSA instructions direct applicants to report 1040, line 22 minus Schedule 2 line 2 for income taxes paid. These instructions removed the refundable credit for coverage under a qualified health plan under section 36B of the IRS Code from income taxes paid. The data transferred via the FA-DDX is drawn from 1040 line 24.

Similarly, the Department has determined that the written instructions for applicants who are manually entering their education tax credits are inconsistent with the data that will be transferred from the IRS through the FA-DDX process. Specifically, the FAFSA instructions direct applicants to report IRS Form 1040 Schedule 3: line 3 and the FA-DDX IRS will be providing data from Form 8863, line 8 plus line 19.

The Department believes that these issues affect a very small number of FAFSAs for the 2024-25 year.

The Department will amend the FAFSA instructions to align with the data definition used by the FA-DDX. The Department will not consider manually entered data in accordance with the existing FAFSA instructions to be conflicting information that must be resolved. However, schools may use their discretion to make corrections to align what was manually entered with the data that is being reported via the FA-DDX if the school determines that such an adjustment benefits the student. As a reminder, for the 2024-25 award year, the Department significantly reduced verification selection. However, schools continue to have the authority to opt for institutional verification selection at their discretion.

Schools that establish institutional verification selection policies, and who choose to collect IRS documentation such as tax transcripts or copies of tax returns to match against FA-DDX data, may still notice inconsistencies due to the dynamic nature of IRS data. The FTI provided by the IRS via the FA-DDX may not match copies of tax returns or transcripts provided by the taxpayer since their copies do not include adjustments made by the IRS when processing returns or after filing because of IRS’s matching against third-party information returns, audits, and other changes. FA-DDX transmits information that is accurate at the time it is provided. Schools are reminded that the IRS is the required source for income and tax information for FAFSA, and that FTI is considered IRS documentation. The FA-DDX is the first authority in the hierarchy of IRS tax documentation for federal student aid purposes. Other documentation from the IRS, such as applicant-provided tax returns, is secondary to the FA-DDX.

As part of our commitment to providing the most up-to-date information, we will provide a daily message every morning this week summarizing updates and sharing additional information to help schools, states, scholarship organizations, and families stay up to date on FAFSA processing and implementation. Keeping you informed of the steps we are taking to reduce further delays continues to be a top priority.

You may refer additional questions to the Department using the Contact Customer Support form in FSA’s Partner Connect Help Center. To submit a question, please enter your name, email address, topic, and question. When submitting a question related to this Electronic Announcement, please select the topic “Policy Guidance.”