Students applying for financial aid – and their parents and financial aid advisors – have reason to rejoice with the October 1 return of the Internal Revenue Service Data Retrieval Tool (IRS DRT). This handy service allows most families’ tax return information to be drawn from the IRS and prepopulated within the Free Application for Federal Student Aid (FAFSA), as well as the application for the Income-Driven Repayment Plan. The IRS DRT minimizes tax-related errors in filling out these important forms and reduces the chances of FAFSA applicants being selected for verification, a process ordered by the U.S. Department of Education and administered by your financial aid office that can delay your financial aid award.
Federal Student Aid disabled the IRS DRT on March 3 due to concerns about the vulnerability of taxpayer data, and it has remained offline for FAFSA applications since. When the tool becomes available again on October 1, 2017, it will be only for the 2018-19 FAFSA and beyond. While applicants can always enter tax information manually, as they’ve had to do while the tool was unavailable, many are glad to welcome the IRS DRT’s return.
With the reintroduction of the IRS DRT for the 2018-2019 academic year, some things have changed from the previous version.
Your IRS data will be encrypted – and invisible. The U.S. Department of Education and the IRS took this downtime to implement some serious protections for taxpayer data, so they’ll now encrypt students’ and parents’ tax information. This means you won’t be able to see your actual IRS data on the IRS DRT web page and within the data entry fields on the FAFSA; instead, you’ll see “Transferred from the IRS” (similarly, your Student Aid Report will show this same language where the tax data would otherwise appear).
Applicants with amended tax returns can now use the IRS DRT. Previously, those who had amended their tax return for the year being reported on the FAFSA were not eligible to use the IRS DRT (for the 2018-19 FAFSA, this would be the 2016 tax year). Going forward, amended filers can use the IRS DRT provided they successfully authenticate and agree to transfer their tax data to the FAFSA. There’s just one minor catch – the information appearing on the FAFSA will be from the original tax return, not the amended version. The IRS will then alert the financial aid office of any college receiving the FAFSA that the applicant’s tax return was amended, so these filers should be prepared to show their amended tax return to the financial aid office.
You’ll have extra steps to take if any of these apply to you:
Applicants (or their parents) who file taxes jointly will have to manually enter their income earned from work, because the new IRS DRT system won’t display the data it transfers to the FAFSA. Those who file single tax returns won’t have to take this extra step, as the IRS DRT will transfer their income earned from work automatically. Married couples who file taxes separately will be ineligible to use the IRS DRT, just as before.
If the parent closed out an IRA or pension plan with the intention of rolling the closed out amount into another retirement account, and therefore did not have taxes deducted, you will have extra fields to fill out on the FAFSA.
IRA and pension distributions will be automatically transferred and autofilled on the FAFSA form, and incorrectly counted as income. This could affect the amount of aid the student can qualify for. Because of the new security measures implemented, the parent will not be able to see the amounts that are autofilled in the fields showing untaxed IRA or pension distribution. But you will be asked if the amount includes a rollover. If the amount includes an IRA rollover, answer yes.
Thus, if an amount greater than $0 is transferred from the IRS into the Untaxed Portions of IRA Distributions field or the Untaxed Portions of Pensions field in the FAFSA form, the online FAFSA form will generate a new field for you to report the amount of any untaxed IRA distribution or pension that was rolled over. The parent will need to manually enter this number. The FAFSA will then subtract the user-reported rollover amount from the amount of the IRA or pension distribution that was transferred from the IRS, and the result will be used in the calculation of the applicant’s expected family contribution (EFC). If the parent rolled over the entire amount from the closed out IRA or pension plan, that money will have no impact on the EFC.
If you need to make corrections to the data transferred to your FAFSA from the IRS DRT due to incorrectly reporting an IRA or pension rollover, filing an amended tax return, or if it’s been determined that you shouldn’t have been allowed to use the IRS DRT, then you’ll want to work closely with your financial aid office – they can help you resolve all these issues.
The IRS DRT became available in June to borrowers applying for the federal Income-Driven Repayment Plan. The same encryption and authentication features are in use for these applicants who choose to transfer their tax data using the IRS DRT. For the latest information about the IRS DRT, see this article from Federal Student Aid.
Applicants who used the IRS DRT to transfer their tax information to the 2018-19 FAFSA form will receive in the mail a letter from the IRS confirming that their information was used for the FAFSA form.
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