(APP-21-19) IRS Data Retrieval Tool and Potential Inaccurate $1 Adjusted Gross Income for the 2022–23 FAFSA Form

Author
Federal Student Aid
Electronic Announcement ID
APP-21-19
Subject
IRS Data Retrieval Tool and Potential Inaccurate $1 Adjusted Gross Income for the 2022–23 FAFSA Form

On March 5, 2021, Federal Student Aid (FSA) alerted the financial aid community in an Electronic Announcement (EA) to a situation involving possible erroneous reporting of the adjusted gross income (AGI) for some applicants (or their parents) who used the IRS Data Retrieval Tool (DRT) to transfer their 2019 financial information. FSA reported that we were working with our partners at the IRS to determine the extent of the issue, and we noted that, at the time, institutions were not required to actively identify applications that may meet this condition.

In July of 2021, the IRS began issuing advanced Child Tax Credit payments. Eligibility is based on 2019 and 2020 income reported on tax returns. The IRS  launched a new non-filer tool to determine eligibility for the Child Tax Credit for individuals who were not required to file a 2019 or 2020 tax return, but are otherwise eligible for the credit. The IRS has confirmed the new non-filer tool will create the same scenario mentioned above by generating an incorrect AGI for individuals that incorrectly used the tool for the 2020 tax year.

Free Application for Federal Student Aid (FAFSA®) filers who use the IRS Non-Filer Portal (NFP), subsequently file a 2020 tax return, and then use the IRS DRT to transfer their tax information into the 2022–23 FAFSA form will unknowingly report an incorrect AGI of $1. This may result in a lower Expected Family Contribution (EFC) and a higher Pell Grant award for students who would not otherwise be eligible.

Note: The new tool was launched after the filing season and has MANY warnings on the landing page and inside the tool to educate taxpayers prior to using the tool. So far, the volumes are low when compared to the number of tax filers who erroneously used the original NFP. 

Potential Impact to Student Aid Eligibility for 2022–23 FAFSA cycle

FAFSA filers who use the NFP, prior to filing a 2020 tax return, and then use the IRS DRT to transfer their tax information into the 2022–23 FAFSA will have an incorrect AGI of $1. This may result in a lower EFC and a higher Pell Grant award for students who would not otherwise be eligible. 

As a result of this issue, Financial Aid Administrators are encouraged to identify all instances of $1 AGIs, for the 2022–23 FAFSA cycle, and follow-up with applicants to resolve as appropriate. Schools should instruct the student and/or parent to obtain a Record of Account from the IRS to verify if the $1 value is correct and make adjustments to the student’s financial aid package as needed.