Maintained for Historical Purposes

This resource is being maintained for historical purposes only and is not currently applicable.

Verifying Untaxed Income and Benefits

AwardYear: 1996-1997
ChapterNumber: 2
ChapterTitle: Required Verification Items and Acceptable Documentation
Section: Verifying Untaxed Income and Benefits
PageNumber:


[[Tax return verifies most untaxed income]]
The term "untaxed income" means any income excluded from
federal income taxation under the IRS code. For an application
selected for verification, you are required to verify up to six types of
untaxed income and benefits. Except for Social Security benefits
and child support, the required items can be verified using the tax
return or alternative tax documents (see the previous section).*8*

[[The chart "Verifying Untaxed Income" on page 30 is currently
unavailable for viewing. Please reference your paper document for
additional information.]]

In addition to these types of untaxed income and benefits, you are
required to verify all other untaxed income reported on the U.S.
income tax return (excluding schedules).

You are not required to verify any untaxed income and benefits
received from a federal, state, or local government agency on the
basis of a financial need assessment. Further, in addition to the
income discussed earlier regarding Native American applicants,
certain types of income are considered "in-kind" income and should
not be reported for student aid purposes or verified by the school.

Examples of In-Kind Income
(not to be reported as income for SFA purposes)

- Food Stamp Program
- Food Distribution Program
- National School Lunch and School Breakfast
programs
- Commodity Supplemental Food Program (CSFP)
- Special Milk Program for Children
- Daycare provided by the Social Services Block
Grant Programs
- Rollover Pensions
- JTPA Benefits (up to $2,000;
excess must be reported
- Veterans Educational Benefits
- Payments and services received from states for
foster care or adoption assistance, under Part A or
Part E of Title IV of the Social Security Act


Verifying Untaxed Social Security Benefits

You are not required to verify Social Security benefits unless you
have reason to believe that benefits were received and either were
not reported or were reported incorrectly. If you are required to
verify these benefits, the following documentation is acceptable:

- documentation from the Social Security Administration showing
the total amount of benefits received by the applicant and/or the
applicant's spouse (if applicable) and/or the dependent applicant's
parents

- a statement signed by the applicant (and/or spouse and/or parents)
certifying that the amount of Social Security benefits reported on
the application is correct

A Tip for Verifying SS Benefits

Be sure the student reports the total amount (not the monthly
amount) of benefits received in the base year--including
Supplemental Security Income and benefits received on behalf of
dependent children. Also, be sure the benefits were not included in
the AGI. Lastly, if the Social Security statement shows an amount
deducted for Medicare, make sure that amount is included in the
total benefits reported.


Verifying Child Support Received

[[34 CFR 668.56(d)]]
You must verify child support if the applicant reports receiving it, or
if you have reason to believe it was received. This requirement does
not apply if the applicant reports the same amount for child support
that you verified in the previous award year.

[[Signed statement in lieu of completed worksheet]]
If you must verify this item, a completed verification worksheet is
sufficient documentation. In lieu of a worksheet, however, you must
require a statement confirming the amount of child support received
for all children in the household. The applicant--and, for dependent
students, the applicant's parent--must sign this statement.

[[34 CFR 668.57]]
If you have reason to doubt the statement provided, you should
request at least one of the following documentation items:

- a copy of the divorce decree or separation agreement showing the
amount of child support to be provided

- a signed statement from the parent who provided the support,
showing the amount of child support provided

- copies of the canceled checks or money order receipts


Verifying Deductions for IRA and/or Keogh plans

Payments to IRA and/or Keogh plans can be verified using the tax
return. The deducted amounts are reported on lines 23a, 23b, and 27
of IRS Form 1040, or line 15c of IRS Form 1040A.


Verifying Foreign Income Excluded from U.S. Taxation

Under the IRS code, certain U.S. citizens and residents living in
foreign countries are allowed to deduct some excessive foreign living
expenses or to exclude a limited amount of income received for
personal services rendered abroad. Though deducted for tax
purposes, this amount is considered untaxed income for federal
student aid purposes, and you must verify it.

Excluded foreign income can be verified by using IRS Forms 2555
(line 43) or 2555EZ (line 18).


Verifying Earned Income Credit

[[Low-income workers]]
Earned income credit is available to eligible low-income workers and
must be reported and verified. The amount can be verified from line
57 of the 1040, line 29c of the 1040A, or line 8 of the 1040EZ.


Verifying Interest on Tax-Free Bonds

Interest on tax-free bonds can be verified using the tax return. Refer
to line 8b of IRS Form 1040 or to line 8b of IRS Form 1040A.

*3* If a sibling would be considered dependent for the purposes of
applying for federal student aid, he or she can be included in
household size whether or not the applicant's parents provide more
than half of that sibling's support. (The sibling does not actually
have to be a student or actually apply for federal student aid to meet
this exception.)

*4* Support includes money, gifts, loans, housing, food, clothing,
car payments or expenses, medical and dental care, and payment of
college costs.

*5* One of the following income tax forms is considered an
alternative to a U.S. Form 1040A or 1040EZ: the income tax return
required by the tax code of the Commonwealth of Puerto Rico,
Guam, American Samoa, the Virgin Islands, the Republic of the
Marshall Islands, the Federated States of Micronesia, or Palau.
Information from these tax returns would be reported on the FAFSA
in the same manner as U.S. tax information. Amounts are already
reported in U.S. dollars and must be compared to the U.S. tax return
line items in order to be verified.

*6* If the IRS cannot provide a copy of the return, a Letter 1722, or
an RTFTP, you may accept a copy of the IRS Form W-2 for each
person whose income is listed on the application. (If a filer is self-
employed or if a W-2 is otherwise unavailable, you may accept a
signed statement from the filer certifying that his or her income and
other appropriate information is correct.)

*7* Again, if the IRS cannot provide a copy of the return, a Letter
1722, or an RTFTP, you may accept a copy of the IRS Form W-2 for
each person whose income is listed on the application. (If a filer is
self-employed or if a W-2 is otherwise unavailable, you may accept a
signed statement from the filer certifying that his or her income and
other appropriate information is correct.)

*8* In addition to alternative tax documents, nonfilers should also
submit a signed statement, as mentioned previously, that certifies
their nonfiler status and lists the amounts and specific sources (by
name) of untaxed income and benefits.

Last Modified: 06/09/1998