This blog post complements the Feb. 11 NCAN webinar, "How FAFSA Simplification will Change Financial Aid." NCAN members can view the webinar recording and slides via the webinar archives. Please note that Congress has passed these changes into law, but that they will not appear before the FAFSA for the 2023-24 academic year. Filers looking for guidance on FAFSA for any early academic years should visit NCAN resources on the Form Your Future webpage.
All students completing the 2023-24 Free Application for Federal Student Aid (FAFSA) will be required to consent to allowing the Internal Revenue Service (IRS) to transfer their federal tax information to the U.S. Department of Education. In effect, the
IRS Data Retrieval Tool (IRS DRT) will no longer be optional, and separate approval will no longer be required.
The signing statement on the FAFSA will change accordingly and will apply to anyone who signs the FAFSA, including the applicant and the applicant’s spouse or parents, if applicable.
If an individual refuses to provide approval for this disclosure, the applicant will be ineligible for federal student aid. [20 USC 1098h(a)(1)]
If tax returns are not available for the applicant (and the applicant’s spouse or parents, if applicable) because they were not required to file a federal income tax return, the student aid index will be assumed to be -$1,500. [20 USC 1087mm(c)] Additionally,
the IRS will confirm this tax status, which will eliminate the need to file IRS Form 4506-T to obtain a verification of non-filing letter.
Applicants will still be required to create an FSA ID to sign the FAFSA electronically. [20 USC 1090(a)(2)(B)(iii)] If an applicant, spouse or parent is unable to sign the FAFSA electronically, the applicant, spouse, or parent will be able to print, sign,
and mail a signature page.
Questions About Information That Can’t Be Transferred From the IRS
There will be several questions relating to information that cannot be obtained from a federal income tax return.
Qualified rollovers: Applicants will be able to indicate how much of a tax-free distribution from an individual retirement plan, pension, or annuity was a qualified rollover. This figure will be subtracted from total income. [20 USC 1087vv(a)
and 20 USC 1090(a)(2)(B)(ii)(XVIII)]
Foreign income exclusion: Applicants will be required to report the amount of excluded foreign income. This figure will be added to total income. [20 USC 1087vv(b)(5) and 20 USC 1090(a)(2)(B)(ii)(XIX)]
Taxable portion of scholarships and grants included in gross income: Applicants can choose to report college grant and scholarship aid that was included in gross income on their federal income tax returns. This includes fellowships, assistantships,
and national service education awards. The taxable portion of these awards will be subtracted from total income. [20 USC 1087vv(e)(2)]
Changes in family size: The FAFSA will provide a process for confirming the family size reported on federal income tax returns or for updating the family size based on a change in family size from the prior-prior tax year. [20 USC 1090(a)(2)(B)(iv)]
Income and Tax Information to Be Disclosed By the IRS
The information to be disclosed by the IRS is specified in section 6103(l)(13) of the Internal Revenue Code of 1986. It includes the following information:
Taxpayer identity information
Filing status
Adjusted Gross Income (AGI)
Total number of exemptions claimed, if applicable
Number of dependents
If applicable, the fact that no return was filed
The amount of any net earnings from self-employment, wages, and taxable income from a farming business
Amount of total income tax
Amount of any American Opportunity Tax Credit or Lifetime Learning Tax Credit
Amount of IRA distributions not included in AGI
Amount of IRA contributions and payments to self-employed SEP, Keogh, and other qualified plans that were deducted from income
Amount of tax-exempt interest received
Amounts from retirement pensions and annuities not included in AGI
Whether schedules A, B, D, E, F, and/or H were filed with the return
If applicable, the amount reported on Schedule C as net profit or loss
The disclosure of this information is subject to the restrictions in 20 USC 1098h.
What About Applicants Who Can’t Use the IRS DRT?
The Consolidated Appropriations Act, 2021, did not specify how the FAFSA will handle applicants who are currently unable to use the IRS Data Retrieval Tool. The Office of Federal Student Aid (FSA) was already in the process of implementing the FUTURE
Act of 2019, which allowed for the automatic transfer of tax data between the IRS and FSA.
It is unclear at this time how FSA will address FAFSA filers with tax statuses currently ineligible for the DRT, beyond the non-tax-filers (addressed above). These tax statuses include FAFSA filers who: file foreign income tax returns, file married filing
separately, or are parents who have an ITIN. FSA will probably have to issue guidance or require these applicants to answer the relevant questions manually.
Congress is requiring the U.S. Department of Education to provide quarterly reports to the authorizing committees on the progress in implementing the new FAFSA, including “any areas of concern and potential problem issues uncovered that may hamper such
implementation and solutions determined to address such issues.” [20 USC 1090(a)(9)] These reports could provide further insight on how these questions will be handled.
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