Understanding Tax Returns in
Financial Aid and the
Verification process
** Client Confidential **
F. Duane Quinn
Director of Training and Development
American Student Assistance (ASA)
quinn@amsa.com
** Client Confidential **
Forms: Non-filer
 Gross
under $7850. and not claimed by
another
 Claimed
by parents, but gross less than
$4700.
 Not
owed a refund of withholding
 Unearned
income < $700
** Client Confidential **
Forms: 1040EZ
 Single
or married (filing jointly); no
dependents
 Income
only from wages, salaries, tips
and < $50,000
 taxable
 Will
interest income <$400.
claim standard deduction
** Client Confidential **
Forms: 1040EZ
 Changes
for 2002:
– Remove Rate Reduction Credit Line 7
– Earned Income Credit moves to line 8
– Tax paid moves to 10
** Client Confidential **
Forms: 1040A
 Income
under $50,000., wages, salary
 Will
take standard deduction
 Can
get IRA; Hope; Student loan
interest deduction
** Client Confidential **
Forms: 1040A
 Changes
for 2002:
– Removal of Rate Reduction Credit line 30
– Tax paid becomes line 36
– EIC moves to 41
– Additional Child Tax credit moves to 42
** Client Confidential **
Forms: 1040 - Must use to…..
 Report
non taxable interest, dividends,
capital gains
 Claim Itemized deductions
 Claim deductions for: moving expenses,
payment of alimony, SEP
 Parents reporting child’s Interest & Div...
 Business; Rental; Trust; Partnership
** Client Confidential **
New on 1040 for 2002

New Off-sets to Total Income (Educator
and Tuit. And Fee) AGI moves to line 35

Eliminate Rate Reduction Credit line 47

Taxes Paid moves to line 55

Earned Income Credit moves to 64

Additional Child tax credit moves to 66
** Client Confidential **
Forms:1040 Some Schedules
 “A”
: Itemized Deductions
 “B”
: Interest and Dividend Income
 “C”
or “C-EZ” : Business Profit / Loss
 “D”
Capitol Gains and Losses
 “E”
: Supplemental Income (Rental,
Partnerships, Trusts)
** Client Confidential **
Forms: Letter 1722 (DO)
 Transcript
of Tax Information
 Request
and receive “on the spot” with
proper identification.
 Acceptable
 RTFTP
 Letter
for verification
-issued when 1722 not available
2951C; 8055C; 8059C
** Client Confidential **
Federal Tax Forms and
Verification

Federal tax returns
form the backbone
of the official
verification process
** Client Confidential **
Federal Verification
 Applications
with Conflicting Information
– Must resolve all; even if not selected
 Verify
all selected; but not in excess of
30% of “applicants”
– School policy on selection of students to be
verified
– School policy on definition of “applicants”
** Client Confidential **
Documents to Collect:
 Federal
Verification Worksheet or
Institutional Form
 Appropriate
Tax Document
– Original signature; copy; preparer stamp
(copy) are all OK
 “Other”
if necessary
** Client Confidential **
Required Verification Items
 Household
 Number
in College
 Adjusted
 U.S.
Size
Gross Income
Income Tax Paid
 Certain
Untaxed Income / Benefits
** Client Confidential **
“Certain” Untaxed Income
 Untaxed
Social Security Benefits
 Child
Support
 IRA /
Keogh Distributions
 Foreign
Income Exclusion
 Earned
Income Credit
 Interest
on Tax-free Bonds
** Client Confidential **
Required Verification Items
from Tax Returns
 Adjusted
 U.S.
Gross Income (AGI)
Income Tax Paid
 Some
Untaxed Income / Benefits
** Client Confidential **
Verification Items from Tax Returns
Taxable Income
1040 EZ IRS 1040 A
IRS 1040
Telefile
Adjusted Gross Income
Line 4
Line 21
Line 35
Line I
U. S. Tax Paid
Line 10 Line 36
Line 64
Line K
Untaxed Income
Earned Income Credit
Add. Child Tax Credit
Untax. SS Benefits
Tax Exempt Interest
Untaxed IRA Dist.
Untaxed Pen. and Ann.
IRA / Keough Deduction
Foreign Income Exclusion
Cr. Tax on Special Fuels
Line 8
NA
NA
NA
NA
NA
NA
NA
NA
Line
Line
Line
Line
Line
Line
Line
NA
NA
41
Line 64
42
Line 66
14a - 14b Line 20a - 20b
8b
Line 8b
17
Line 24 + 31
12a -12b Line 15a - 15b
17
Line 24 = 31
Line 21
Line21
Line L
NA
NA
NA
NA
NA
NA
NA
NA
** Client Confidential **
Remember!!!!!

Other required
verification Items not
found on IRS forms:
– Child Support Rec’d
– Welfare
– Household size not
always = exemptions
– Number in college
** Client Confidential **
Verifying Child Support:
 Signed
Verification Worksheet
– or
 Statement
signed by Parent and
Student
– or
 Copy
of Divorce Decree / Canceled
Checks / Statement of non-custodial
- or
 Not required to verify if same amount as
was verified last year
** Client Confidential **
Verifying Household Size
 Signed
Verification Worksheet
 Institutional
Form
 Signed
Statement with names; ages;
relationship to student
** Client Confidential **
Household Size (Cont’d)
 Not
need to verify if:
– SAR / ISIR within 90 days of signature
– same as verified last year
– Married- 3 / Single - 2
– Independent single with HH of 1 or
married -2
** Client Confidential **
Verifying Number in College
 Signed
Verification Worksheet
 Signed Institutional Form
 Signed Statement with names; ages;
institutions
 Not
Required if: SAR w/in 90 days of
signature; Enrolled at your school;
number in college is 1
** Client Confidential **