Download Taxes and Financial Aid

Kathy Anderson
Colleen Russo
April 23, 2015
Agenda
 Financial Aid and Taxes
 FAFSA/Profile
 Verification
 Taxes and Financial Aid
 1098 T
 Tax Credits/Deductions
 College Savings Plans
About Financial Aid
 Uses tax returns as a good estimate for current year
income
 Income and assets are calculated to come up with an
estimate of a family’s ability to pay
 Includes parent and student income and assets
 Tax returns give clues about family’s financial strength
as compared to others in the same pool
 Every college uses the same formula to attempt to
create a level playing field
FAFSA Completion
 Specific tax information is required
 AGI
 Taxes paid
 Untaxed income
 Number of exemptions
 Filing status

Often uncovers a number of families who both
file H of H, need to amend
FAFSA Completion - Timing
 Most colleges have a deadline earlier than families
complete their taxes
 Colleges advise families to estimate income
information based on prior prior year returns
 May become a permanent change
CSS/Financial Aid PROFILE
 Digs deeper:
 Value of home
 Retirement savings
 Value of business
 Value of any 529 plans for the student regardless of
ownership
IRS Data Retrieval Tool
 Presented to families as
they complete FAFSA
 Preferred option for
returning students
 Available to update
FAFSA after filing
FAFSA IRS Data Retrieval Tool
 Need PIN, SSN
 Not everyone can use it:
 Marital status mismatch/change
 Taxes not completed
 Amended return
 Parents do not have valid SSNs
 Change in home address from tax return
Retrievable Items
 Type of return filed
 Tax Exempt Interest
 AGI
Income
 Untaxed IRA
Distributions
 Untaxed Pensions
 Income earned from
work, including K-1
earnings
 Tax Paid (federal)
 Exemptions
 Education Credits
 IRA Deductions
Common Errors
 Taxes withheld vs. taxes paid
 Marital status mismatch
 Omitting assets
 Type of tax return filed (or could have filed)
 Untaxed Income
 IRA Deductions
 Retirement plan contributions
 Tax exempt interest
Verification
 Students and families need to document information
provided on FAFSA.
 Designed to minimize fraud
 Must provide an IRS Tax Transcript and complete a
worksheet
 PROFILE schools use tax returns
 ALL schedules
Other Verification Items
 Household Size
 Number in College
 Child Support Paid
 SNAP (food stamps)
 High school completion
 Identity and statement of educational
purpose
 Other untaxed income
Conflicting Information
 Financial aid administrators must possess basic tax
knowledge, such as:
 Whether or not someone was required to file
 Correct filing status
 Claimed as an exemption by more than 1 person
 Claiming dependents
 Cannot disburse aid until issues are resolved
 May need to have student/parent refile
Extensions
 Schools must proceed with verification using the
following:
 Taxes paid from Form 4868
 Income Earned from Work from w2 or signed
statements
 Verification worksheet for other information
1098T Form
1098T: Reported in Box 1
Qualified Tuition and Related Expenses
 Tuition
 Books, if billed by institution
 Fees
 Malpractice insurance
 Miscellaneous MANDATORY fees
1098T - Not Reported in Box 1
 Tuition for non-degree courses
 Meal plans, dining hall
 Health insurance charges
 Housing costs
 Late payment fees
 Fines
 Parking fees
 Transportation fees
1098T - Reported in Box 5
 Payments, Scholarships and Grants
 Third party billing arrangements
 DoD Tuition Assistance
 Pell, SEOG grants
 Institutional or outside scholarships/grants
 Veterans’ Benefits where VA pays Institution
1098T – Not Reported in Box 5
 Corporate or employer assistance not administered by





college
Exchange/consortium students
Private Scholarship, trust or family trust
Distributions from a 529 plan
Tuition waivers
VA Benefits paid directly to student
Saving for College: 529 Plans
 529 Plans allow parents or others to put away after tax
money to save for college
 Earnings for qualified expenses are tax free at
withdrawal
 Counted as a resource of the owner for financial aid
 Two types: Prepaid tuition and savings plans
529 Plans - Saving
 Almost every state has at least one plan
 Offered by a branch of state government
 Managed by a brokerage house or investment firm
 U Fund in Massachusetts
 Gains are tax-free when used for qualified higher
education expenses at an eligible school
 Tuition, required fees, books, room and board
529 Plans - Withdrawals
 Funds can be sent directly to college
 Should allow processing time
 Can be used for installments
 Funds can go to beneficiary
 1099Q will go in beneficiary’s SSN
 No tax penalty if student gets a tax-free scholarship
 Gains are taxed
 Should time withdrawals to be within the tax year
529 Plans: Prepaid Tuition
 Lock in a percentage of tuition
 Most plans limit participation to state schools
 Most funds invest in stock market
 Many programs were hurt by 2008 crash
 Many state programs are not accepting new
participants
529 Plans – Prepaid Tuition
 U Plan is unique:
 Invested in tax-exempt general obligation bonds issued
by the Commonwealth
 80 participating colleges and universities in MA
 Earns interest at the rate of CPI
 Get entire investment plus interest back if student does
not attend a participating college
 Withdrawals are tax-free
 Limited to tuition and fees
U.Plan Example
College
Current Investment Percentage
Cost
Community
college
$5,000
$2500
50%
Public
College
$10,000
$2500
25%
Private
College
$25,000
$2500
10%
 Lock in a percentage
of tuition at each
participating college
 Colleges agree to keep
borrowers “whole” if
tuition is above CPI
 Do not need to select
a college when
opening an account
 Private College 529
plan is structured
similarly
U.Plan Withdrawals
 Family requests funds be sent to participating college
 Money is applied directly to the bill
 Students who do not attend a participating college get
funds back with interest
 Tax-free withdrawals
 Can be used for tuition and fees only
Tax Deductions
 Expiring soon
 Not high on federal relations agendas –
 Does not encourage enrollment
 Not available up front for tuition payments
 Cost federal government $23 billion
Thank you
Kathy Anderson
Director of Financial Aid
MGH Institute of Health
Professions
[email protected]
617-724-6356
Colleen Russo
Vice President of
Educational Funding
Porter and Chester Institute
[email protected]
(860) 483-0214