Maintained for Historical Purposes

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

Verifying Untaxed Income and Benefits

AwardYear: 1995-1996
ChapterNumber: 2
ChapterTitle: Required Verification Items And Acceptable Documentation
Section: Verifying Untaxed Income and Benefits
PageNumber:


The term "untaxed income" refers to any income that is excluded
from federal income taxation under the IRS code. For an
application selected for verification, you are required to verify six
types of untaxed income and benefits. With the exception of Social
Security benefits and child support, all of the required items can be
verified using the tax return or alternative tax documents (see the
previous section).

**[The "Verifying Untaxed Income" chart on page 29 is currently
unavailable for viewing. Please reference your paper document
for additional information.]**

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

**[The "In-Kind Income" chart on page 29 is currently unavailable
for viewing. Please reference your paper document for
additional information.]**

In addition to the six types of untaxed income and benefits listed
above, you are required to verify all other untaxed income that is
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, nor should that income have
been reported on the student aid application. 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.


Verifying Untaxed Social Security Benefits

You are not required to verify his or her Social Security benefits
unless verification of this item is specifically required by a comment
on the federal output document or unless you have reason to believe
that benefits were received and were reported incorrectly (or were
not reported at all). The following documentation from the Social
Security Administration is acceptable for verifying Social Security
Benefits:

- 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 in 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

If the applicant reports receiving child support or if you have reason
to believe that child support was received, it must be verified.
However, you do not have to verify child support if the applicant
reports the same amount that you verified in the previous award
year.

Completion of a verification worksheet sufficiently documents this
item. In lieu of a worksheet, however, you must require a statement
confirming the amount of child support received for all children in
the household. This statement must be signed by the applicant
(and/or by the dependent applicant's parent).

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 from line 22 of IRS Form
1040 (if it indicates "Exclusion from Form 2555") or using IRS
Forms 2555 or 2555EZ. If foreign income is reported, any untaxed
income reported should include foreign income exclusions. Also,
note that even though the amount on line 22 is reported as a
negative number, it should be reported as a positive dollar amount
on the FAFSA Worksheet #2.


Verifying Earned Income Credit

Earned income credit is available to eligible low-income workers
who maintain a home in the U.S. in which at least one child resides.
Earned income credit must be reported and verified. This amount
can be verified from line 56 of IRS Form 1040, or line 28c of IRS
Form 1040A.


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.

*5* 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, regardless of whether more than one-
half of his or her support is provided by the applicantÂ’s parents.
(The sibling does not actually have to BE a student or actually
APPLY for federal student aid to meet this exception.)

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

*7* If the IRS cannot provide 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, as described previously.)

*8* For IRS Form 1040, the total tax shown will not always be the
same figure as the one that should be reported on the application.
For example, if a self-employment tax is present, it will be included
in the listing. To arrive at the correct tax, subtract the self-
employment tax from the total tax. If you have reason to believe
that any other types of tax are included in the total tax amount, have
the taxpayer request a copy of the 1040 using IRS Form 4506.

Last Modified: 06/11/1998