| AwardYear: 1997-1998 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 must 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* In addition to these types of untaxed income and benefits, you must verify all other untaxed income reported on the U.S. income tax return (excluding schedules). Verifying Untaxed Income Social Security Benefits* Child Support* IRA/Keogh Deductions Foreign Income Exclusion Earned Income Credit Interest on Tax-Free Bonds *only required in certain cases—see the text for details. 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) - 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 believe verification is necessary, 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(a)]] [[Signed statement in lieu of completed worksheet]] You must verify child support if the applicant and/or spouse and/or parents report receiving it, or if you have reason to believe it was received. This requirement does not apply if the applicant and/or spouse and/or parents report the same amount for child support that you verified in the previous award year. If you must verify this item, a completed verification worksheet is sufficient documentation. In lieu of a worksheet, 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. If child support is paid through a government agency, a statement from that agency would be acceptable. If you have reason to doubt the statement provided, you SHOULD request at least one of the following documentation items: [[34 CFR 668.57]] - 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 (EIC) [[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 54 of the 1040, line 29c of the 1040A, or line 8 of the 1040EZ. Note that if parents file a joint tax return and qualify for EIC but then separate or divorce before the student files the FAFSA, the parent with whom the student lived most in the last 12 months would determine his or her portion of the EIC by using the tax rate schedule or proportional distribution calculations (see page 27). 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. |