I just learned from one of my son’s EA colleges that there is apparently a discrepancy in the IRS FAFSA transfer tool with regard to taxation of unemployment compensation. We received unemployment compensation in 2020 and filed our 2020 taxes early, in February 2021. Initially, unemployment compensation was treated as taxable income by the IRS. Once Congress voted to make 2020 unemployment compensation nontaxable, we were advised NOT to file an amended tax return and that the IRS would automatically make the adjustment on their end and refund any monies owed, if applicable. The IRS later gave us a small refund on the unemployment taxes paid a few months later (I think we received it in August 2021). I would have thought they would automatically update their tax records to reflect this adjustment. However, in November, we used the IRS automatic transfer feature to automatically import our 2020 income into FAFSA. Apparently, the IRS import feature did NOT update to reflect the change in the treatment of unemployment income. So when we filed FAFSA, it imported the incorrect information. On the other hand, when we completed CSS, we based it on the updated tax return, so that information was accurate. I now realize that we’ve unknowingly sent the erroneous information to several other schools. Is anyone familiar with this situation? Should we go in and delete the auto-import from the IRS and manually replace the entries for unemployment income in 2020? I was always told that it’s much better to use the IRS income retrieval tool rather than manually entering the values, so I hesitate to delete the automated import. Should we also contact the colleges individually to let them know that the CSS taxable income is correct but the FAFSA taxable income (and tax paid) is off by the amount of unemployment compensation? It’s so annoying that FAFSA doesn’t permit users to view the actual VALUES that are imported from the IRS to make sure they’re correct!
See this link: Impact of American Rescue Plan Change to Tax Treatment of Unemployment Benefits on Student Aid Eligibility for Cycle 2022–23 (Updated Oct. 15, 2021) | Knowledge Center. Something similar happened in the late 2000’s, and my financial aid office ran a report to identify all FAFSAs with unemployment … we automatically fixed them. Because a lot of aid offices are short staffed these days, I suggest contacting schools to let them know. They’ll fix it on their end.
Thank you…I just tried to update FAFSA, but apparently once you’ve used the IRS data retrievial tool in FAFSA, it’s impossible to manually update the entries. I even thought about deleting the FAFSA and starting over, but that isn’t possible either. So frustrating! As it turns out, I found out from the first college that it does make a difference in his Pell eligibility, so this definitely affects his aid package. I guess the only option is to individually notify each school’s financial aid office.
Same situation regarding our Adjusted Gross Income which was amended by the IRS through an account transcript after our returns were filed and of course linked to the FAFSA submission.
I contacted FAFSA to see how to go about amending our linked tax return but have been informed that is not possible. They advised to contact each Financial Aid office directly.
I’m not sure what if any impact this might have (it’s a $10,200 adjustment to AGI) and using revised numbers in the net cost calculators seemed to make no difference for us.
Nonetheless, just to be sure, I did send that account transcript along with an explanation to all the financial aid departments in the event it might have an impact on aid packages already provided but have yet to receive a any response beyond “received”.
You can get a downloadable copy of the account transcript showing the adjustment made by the IRS at the IRS website if you think it might be worthwhile. Good luck. Fun times.
We are in the same situation. How do you request the transcript you mentioned?
Thanks!
If you are ok accessing the IRS.gov website, my recollection is you can create an online services profile/account and access all your tax info including the account transcript the IRS created reducing your AGI. You should be able to have a copy emailed to you.
If I remember correctly, I left the numbers alone but filed a correction where I described the issue (this may have been for CSS and not FAFSA). I am actually now worried about filing my 2021 returns and having turbotax import the wrong info from our 2020 return!
Our tax software automatically updated our 2020 tax return to correct it, i.e., treating our unemployment compensation as nontaxable, without our even needing to amend our tax return or even log in to update entries. This update was made after our return had already been filed, so slightly confusing, since I still don’t know which AGI to report (since the IRS has stored the original, higher amount including unemployment as taxable income, whereas the adjustment made- that apparently didn’t get reported on the IRS data retrieval tool- reports a lower AGI due to exclusion of nontaxable income.)
When I submitted the FAFSA, I also included a document explaining the situation.
Good idea! Is there a specific place in FAFSA to explain the error?
No (although there is on the css profile). I wrote a separate letter. My son was a returning student and they let us email our information, but I would call the financial aid office(s) and ask how they would like to receive the information.
Also if you get your award and you think they didn’t take it into account, you should be able to appeal after the fact.
It’s bizarre…the school that initially contacted me about the discrepancy just sent his updated financial aid award and has him Pell eligible (for a reduced amount) as well as SEOG eligible. Another college already replied to my email informing them of the discrepancy- they replied that they were already aware of this error and had already made the adjustments accordingly. Strangely enough, this second college does NOT have him Pell eligible. I wish we could see a breakdown of the specific numbers each school used to calculate the financial aid package.
I know!
What happens when you run the EFC for the two schools? Do they come out similar or different?
(I would run them both with and without the extra $10,200 to see if that might be part of the reason for the difference).
You can figure out what your EFC should be. You will need to figure out what your tax information is after the adjustments for unemployment income. Go to this calculator & plug in the information: Expected Family Contribution (EFC) Calculator - Finaid. Then go to the Pell chart to figure out what the Pell grant should be: https://fsapartners.ed.gov/sites/default/files/2022-01/20222023PellPaymentSchedules.pdf (last line on page 4).
I don’t think the FAFSA processors read documents….they just just the FAFSA data.
Perhaps, did you send an explaining document to the financial aid office(s)?
And if your kid’s school used the CSS Profile…where there is a place for explanations, it’s very possible the school caught that for you based on that.
I think the letter was to the school - the son is currently a student there.
Yes. I replied too quickly and misspoke.
My son’s school wanted copies of tax returns and I uploaded an explanation of the discrepancy at the same time that I sent them the tax returns.