By Maria Carrasco, NASFAA Staff Reporter

The Department of Education (ED) via an electronic announcement on Monday released guidance on several instances where institutions are required to identify and resolve conflicting information and discrepant data on the 2024-25 FAFSA. The announcement clarifies that there are no changes to the regulations related to resolving conflicting information, but that the guidance is intended to address questions from the financial aid community about how to address certain unique circumstances that have arisen this year.

The announcement delineates specific situations and whether they are considered conflicting information, including several situations where FTI and manually-entered data both exist on the ISIR. For instance, some institutions have observed that sometimes a student or contributor who had FTI data reported on the ISIR also manually indicated that they did not file a U.S. tax return in 2022, which results in a Student Aid Index (SAI) and Pell Grant calculation based on the manually entered non-filing status. The FAFSA Processing System (FPS) does not use the FTI in the SAI and Pell eligibility calculations for students that incorrectly indicated “did not file” when FTI is transferred.

ED explained that if this situation does occur, and data does indicate that the student or contributor is a U.S. tax filer, but the appropriate FTI was not used in the SAI calculation, institutions should consider these situations as conflicting information that must be resolved. When resolving the conflicting information, an institution may use the FTI retrieved from the IRS via the FUTURE Act Direct Data Exchange (FA-DDX) to correct the manually entered income and tax information by re-entering the FTI and submitting the correction to FPS. 

Institutions must update all the manual entry data fields associated with the taxes, including tax filing status, ED wrote. Changing the tax filing status from “did not file” to “filed” is not enough to trigger FPS to use the FTI in the student’s calculations, according to ED. Per the electronic announcement, more information on the requirements around resolving conflicting information are outlined in Chapter 5 of the Application and Verification Guide in the Federal Student Aid Handbook.

There is also guidance around situations where manually entered tax and income information and FTI may be present on the same ISIR based on the student’s or contributor’s marital status. 

For example, if an applicant’s parental marital status is divorced, but the FTI has a tax filing status of married filing jointly (MFJ), the ISIR would have the FTI from the IRS and the self-reported tax and income data. The use of self-reported data is correct and should be used for the SAI calculation and Pell eligibility, according to ED. 

If a student’s marital status is married and filed with their current spouse is “no,” but FTI has a tax filing status of MFJ, the ISIR would have the FTI from the IRS and the self-reported tax and income data. Again, the use of self-reported data is correct and should be used for the SAI calculation and Pell eligibility, according to ED. In these two circumstances, the manually entered information is not conflicting information, ED wrote.

The electronic announcement also listed several instances that are not considered conflicting information for the 2024-25 FAFSA cycle. These instances are related to three issues concerning tax data reported on ISIRs, which ED announced in April.

1. Data for education tax credits transferred via the FA-DDX prior to March 30, 2024. ED reprocessed impacted ISIRs and the IRS updated the FA-DDX to include the correct data on applications moving forward.

2. Discrepancies with amended and updated tax return data transferred via the FA-DDX. In cases when taxpayer information was updated through an amended tax return or other adjustment, the FA-DDX transferred the most recent AGI and filing status and the original values for other tax return elements. ED also reprocessed all these impacted records. The IRS also updated the FA-DDX to transfer original tax data only, which means the FA-DDX will not include amended or updated tax data. Further, ISIRs will not include an indicator that amended or updated tax data is available, according to ED.
   
   Additionally, ED specified that while institutions are not required to determine whether taxpayer information on the FAFSA form was amended before awarding or disbursing Title IV funds, institutions that become aware that amended tax information exists for a student or their contributors should treat those circumstances as conflicting information that must be reviewed and resolved. NASFAA has noted that this conflicts with earlier guidance in the Application and Verification Guide, where ED states that if the institution is aware that an applicant or contributor filed an amended return they may, but are not required to update or correct the FAFSA. NASFAA has reached out to ED for clarification. 

3. Issues resulting from discrepant instructions on the FAFSA form for individuals required to manually provide income and tax information. ED noted that the FAFSA instructions – both the paper and online form – directed applicants to report IRS Form 1040, line 22 minus Schedule 2: line 2 for income taxes paid. These instructions removed the refundable credit for coverage under a qualified health plan under section 36B of the IRS Code from income taxes paid. However, the data transferred via the FA-DDX is drawn from IRS Form 1040, line 24. Similarly, the FAFSA instructions directed applicants to report IRS Form 1040, Schedule 3: line 3 for education credits. However, the FA-DDX is providing data from IRS Form 8863, line 8 plus line 19.
   
   In a separate electronic announcement, ED wrote that it would amend the FAFSA instructions to align with the data definition used by the FA-DDX. Further, ED wrote that this correction to the instructions will not occur until the 25-26 FAFSA cycle. However, applicants and their contributors who are directed to manually enter income taxes paid and education credits into the online FAFSA form, or who completed a PDF FAFSA form and used the provided instructions on the 24-25 FAFSA form, are not considered to have reported incorrect or conflicting information, ED clarified.

4. Known issues resulting from calculation errors with the FAFSA Processing System. ED wrote that it will continue to communicate with institutions on known issues that impact records due to calculation errors. ED clarified that these known issues are not considered conflicting information and have been identified by the department for reprocessing. A complete list of known issues, their status, and their assigned reprocessing reason code are detailed in the Technical Frequently Asked Questions and Known Issues document. 

ED also received questions from institutions about situations when the amount of taxable grants and scholarships manually reported by an individual on the FAFSA form is equal to their AGI. ED noted that while uncommon, it is possible for a student or contributor to have grants, scholarships, or AmeriCorps benefits as their only sources of taxable income. ED wrote that while institutions aren’t required to select FAFSA records for verification that report a large amount of taxable grants and scholarships, institutions should review and correct the amount if they receive conflicting information that indicates it may be incorrect.

Publication Date: 6/17/2024

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