Maintained for Historical Purposes

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

Verifying Untaxed Income and Benefits

AwardYear: 1998 - 1998
ChapterNumber: 2
ChapterTitle: Required Verification Items And Acceptable Documentation
Section: Verifying Untaxed Income and Benefits
PageNumber: 1

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 as shown to the left. 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).6 In addition to these types of untaxed income and benefits, you must verify all other untaxed income reported on the U.S. individual income tax return (excluding schedules). The 1998-99 Counselor’s Handbook for Postsecondary Schools provides a complete discussion of untaxed income and benefits that must be reported on the FAFSA.

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, certain types of income are considered “in-kind” income and should not be reported on the FAFSA and do not have to be verified.

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, and

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.

Verifying Child Support Received

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 signthis 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 shouldrequest 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, or

copies of the canceled checks or money order receipts.

Verifying Deductions for IRA and/or Keogh Plans

Deductible payments to IRA and/or Keogh plans can be verified using the tax return. The deducted amounts are reported on lines 23 and 28 of IRS Form 1040, or line 15 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. It should be reported on the FAFSA, and you must verify it. Excluded foreign income can be verified by using IRS Forms 2555 (line 43) or 2555EZ (line 18). Note that the final total for Form 2555 should not be reported as untaxed income, because it contains other exclusions.

Verifying Earned Income Credit (EIC)

EIC is available to certain eligible workers and must be reported and verified. The amount can be verified from line 56a of the 1040, line 29c of the 1040A, or line 8a 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.

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.

Last Modified: 02/03/1999