A group of Democratic senators expressed concerns last week that—absent action from the Department of Education (ED)—recent changes to the 1040 tax form will cause issues for students filing the FAFSA, specifically that it might undo progress made in mitigating self-reporting errors with the creation of the Internal Revenue Service Data Retrieval Tool (IRS DRT).
The lawmakers—Sens. Margaret Wood Hassan (D-NH), Ron Wyden (D-OR), Doug Jones (D-AL), Thomas Carper (D-DE), Tammy Baldwin (D-WI), Tim Kaine (D-VA), Robert Menendez (D-NJ), Bernie Sanders (I-VT), who caucuses with Democrats, Tina Smith (D-MN), and Sheldon Whitehouse (D-RI)—wrote a letter to Education Secretary Betsy DeVos urging ED to work closely with the IRS and to “outline the specific steps that will be taken to ensure that financial aid applicants who misreport Schedule 1 data will not be subject to additional arduous information reporting that could discourage students … from completing their applications.”
Earlier this year, ED posted a draft of the 2020-21 FAFSA and solicited comments—in two rounds of proposals—from higher education stakeholders about changes to the form, which included new questions to reflect the elimination of tax forms 1040A and 1040EZ in June 2018. In lieu of these forms, all filers must now use the 1040 form to file their taxes.
The senators wrote that this change would no longer allow the IRS DRT to import certain tax information into the FAFSA beginning this fall, arguing that it would “not only complicate the FAFSA completion process for many families, but will likely result in the submission of incomplete and inaccurate information regarding some applicants’ financial aid eligibility.”
Specifically, the senators wrote that the IRS DRT will not be able to determine whether those who submitted the FAFSA filed a Schedule 1—a new form created when the 1040 form was changed—and it will therefore not be able to transfer their information properly into the FAFSA. Ideally, the IRS DRT could be used to determine Schedule 1 filing status.
“As a result, financial aid applicants will be required to self-report whether they filed a Schedule 1 on the FAFSA and manually input any required Schedule 1 data into their FAFSA form, putting families at risk of misreporting whether they filed a Schedule 1, or making mistakes while manually inputting Schedule 1 tax data,” they wrote.
The senators also wrote that the changes to the 1040 tax form will cause issues for those who otherwise satisfy the Simplified Needs Test (SNT) and are eligible for an automatic zero Expected Family Contribution (EFC), as this was partially based on whether an applicant’s family filed a 1040A or 1040EZ tax form.
In its proposal, ED suggested adding a question in lieu of those forms that reads, “Did (or will) you file a Schedule 1 with your 2018 tax return? Answer ‘No’ if you did not file a Schedule 1 or only file it to report an Alaska Permanent Fund dividend. See Notes page 9 for other exceptions.”
The senators wrote that they were “very concerned that mistaken answers to this complicated questions could lead to eligible students losing access to the [SNT].”
“Going forward, it is imperative that [ED] and IRS work together collaboratively to fix problems created by the Treasury's changes to the 1040 tax form,” they wrote. “Specifically, [ED] and IRS should promptly negotiate an agreement to transfer all relevant tax information through the [IRS DRT] during the financial aid cycle beginning in October 2020—including information relating to Schedule 1.”
In its comments to ED, NASFAA also expressed concerns with the new question addressing Schedule 1 filers, and instead proposed that ED use skip logic for any applicant who answered “Yes” to then receive a second question that would read,
“Did you file a Schedule 1 only to report or claim one or more of the following:
Capital gain distributions
Student loan interest deduction
Alaska Permanent Fund dividends?”
Applicants who respond “Yes” would then be considered for SNT or automatic zero EFC, holding them harmless from changes to the federal tax forms.
As that option would require ED to add an additional question to the FAFSA—although with skip logic so not all applicants would see it—NASFAA made an alternative suggestion to change the language of the question to read:
“Did (or will) you file a Schedule 1 with your 2018 tax return? Answer 'No' if you did not file Schedule 1, or answer ‘No’ if you only filed Schedule 1 to report one (or more) of the six exceptions listed in the Notes on page 9.”
“This approach places equal emphasis on all exceptions and highlights the number of exceptions, which increase the likelihood that applicants will click on the hyperlink to learn if any of the exceptions are applicable,” NASFAA wrote.
Publication Date: 8/12/2019