New Legislation Would Streamline IRS Data Sharing

The Internal Revenue Service (IRS) would share income and other taxpayer data directly with the Department of Education (ED) during the financial aid application process under the Student Financial Aid Simplification Act, introduced by Rep. Peter Welch (D-VT) on Feb. 20. The legislation was initially introduced in the 112th Congress in September 2012.

Under the current IRS data retrieval process, the IRS shares income tax data with the student and/or parent, and they decide if they want to import that tax data into the student’s Free Application for Federal Student Aid (FAFSA). 

By amending the Higher Education Act and the Internal Revenue Code, the new legislation would remove the student and parent from that process. By applying for Title IV aid, the taxpayer would authorize the Department of Education (ED) to obtain income data and other taxpayer data needed to compute an expected family contribution (EFC) directly from the IRS. Under the bill, the information that would be shared is that from the tax return filed two years prior to the student’s planned enrollment data. This process would be mandatory on the part of the Title IV applicant without the ability to opt out. 

The Student Financial Aid Simplification Act also amends the Internal Revenue Code to allow the IRS, upon request from ED, to share with ED any taxpayer information needed to calculate a student’s EFC.

Supplementary info needed to determine a student’s financial aid eligibility which is not available from the IRS (e.g., citizenship, dependency status, household size, etc.) would still be collected from the applicant separately.

Publication date: 3/1/2013


Publication Date: 3/1/2013

Sheree B | 3/4/2013 12:51:02 PM

My main concern, besides finding a way to deal with all the exceptions, would be the accuracy of using PPY tax data. Financial situations change so rapidly and dramatically, especially considering our current economic conditions, that there is a high probability that PPY income would not accurately reflect a person's true financial situation for the aid year. We already have this issue using PY, and that data the most current available.

I am also curious to know how it is going to work as a mandatory process for students who have circumstances that make them ineligible to use IRS DRT, for example, students whose parents filed separately but are married.

Don D | 3/4/2013 11:28:43 AM

I don't think the fear of increased PJ's should stop the proposed move to PPY. PPY is the right thing to do. PJ's are for major changes in circumstance, not simply a minor decrease in income from PPY to PY. Or is the concern about increased income from PPY to PY?

Sheree B | 3/1/2013 12:41:10 PM

Using tax data from 2 years ago is going to cause a massive increase in PJs. Tax data from year to year is already inconsistent. Also, I'm curious to know not only how would this work for non filers, but people with identity theft issues, those who don't type their address on the FAFSA exactly as it appears on their taxes, people with SS/name mismatches, dependent students who cannot provide parent data, people with untaxed pensions/IRA distributions that are rollovers, foreign tax filers, people who completed amended returns, those whose marital status has changed since filing their taxes 2 years ago, married couples who file separately, separated couples who file jointly, and married couples where one has foreign income taxes.

Perhaps the bugs should be worked out of the current system before making it mandatory.

Francisco V | 3/1/2013 12:0:21 PM

This is exactly what is needed to move the application process into the 21st Century and enhance the process.

Linnea T | 3/1/2013 11:58:23 AM

I am a fan, as long as it actually works. :)

Russell J | 3/1/2013 11:30:16 AM

The PPY information is nothing new as it has been discussed for years. I like the idea of all authorizing, but am interested to hear the details on those who file extensions and/or are late filers. Does this mean you cannot get any federal (and state) need based aid until you complete your taxes? Non-filers? How does this work? Will there be oodles of PJ's going to PPY rather than PY? Just items of discussion that need to take place and I welcome these discussion .....

David D | 3/1/2013 10:14:55 AM

This would be wonderful, and relieve stress from parents and students AND financial aid staff, not to mention imporve efficiency in our offices.

Christopher M | 3/1/2013 10:4:36 AM

This is a must for students. Students would no doubt benefit from this process. Also, it would allow an easier process when a student registers! What can I do to help get this to go through?

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