Have you heard? There’s a new 1040 form coming, and it will be available for the 2018 tax year. Here’s a brief summary of the changes to the form.
- The new 1040 replaces the current form, as well as form 1040-A and 1040-EZ. All taxpayers will now be using the same form.
- The new form contains 23 lines; the 1040 for tax year 2017 contained 79 lines.
- More schedules/forms will now be available. According to the IRS (Internal Revenue Service), they used a ‘building block approach’ when drafting these changes. All filers will now use the new 1040, and those with more than the basic details to report will attach one or more schedules or forms to their return.
- At least six new schedules will be available, numbered one through six. Do you remember schedules that are lettered–Schedule A, B, C, etc.? For the most part, they’re still in play, and you can continue to use them to report your 2018 income tax information.
- Here’s an example of how your reporting methods may change. If you claimed an education credit for 2017, it would have been entered on Line 50 of the 1040 form. For the 2018 tax year, if you claim an education credit you’ll complete a Schedule 3 (Nonrefundable Credits), and then include the total from Schedule 3 on Line 12 of the new form.
The purpose of these changes is to make the filing process less burdensome for a great many filers who usually didn’t have any ‘extras’ to report in previous years.
For more information about the changes coming for the 2018 tax year, see these two informative articles at Forbes.com:
Here’s How The New Postcard-Sized 1040 Differs From Your
Current Tax Return
IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
*All information is based on IRS drafts of 2019 tax forms and is subject to change.
A 529 Plan can be a huge benefit in paying college expenses. However, this college savings account can be tricky to report on the FAFSA. If the account is in the student’s name or in the custodial parent’s name, then the 529 Plan should be reported as a parent asset on the FAFSA. If the student is independent, meaning s/he doesn’t have to report parental information, then the plan should be reported as a student asset. The plan doesn’t have to be reported as an asset if someone other than the student or custodial parent owns the account, such as a grandparent or family friend.
Another aspect of the 529 Plan that can be challenging is distributions from the account. Distributions are funds taken from the 529 Plan for any reason. Students and parents only have to report a distribution from the account if the plan wasn’t reported on the FAFSA as an asset. Here are some guidelines to ensure that you accurately report any 529 Plan distributions:
- A non-qualified distribution – funds taken from the account for non-educational expenses – will be included in the Adjusted Gross Income (AGI) of the student’s federal income tax return. The AGI will be a part of the student’s total income, so the student will just need to report his or her income on the FAFSA.
- A qualified distribution – funds taken from the account for educational expenses – should be reported as the student’s untaxed income on the FAFSA.
- A distribution made from an account that the student or the custodial parent does not own must be reported as the student’s untaxed income on the FAFSA, as well.
The best option for reporting a 529 Savings Plan is to leave the account in the student’s name or in the custodial parent’s name. By doing this, the Plan will be reported as an asset and the family won’t have to report distributions made from the account. For more information on how to report the 529 Plan on the FAFSA, visit Edvisors.com/plan-for-college.
The 2018-2019 Free Application for Federal Student Aid (FAFSA) opened on Oct. 1, and the IRS DRT is available for students once again. What is the IRS DRT, you ask? The Internal Revenue Service Data Retrieval Tool (IRS DRT) is a feature located inside the FAFSA. It allows students and parents to transfer 2016 tax information directly from the IRS into the FAFSA. There are several benefits to using the IRS DRT.
First, it saves time as you’re completing the FAFSA. Instead of hunting for the correct numbers on your tax forms and running the risk of making an error, you’ll simply type a few words, click a few buttons, and the bulk of the tax questions on your FAFSA will be complete!
Second, using the IRS DRT reduces your chances of being selected for verification. Verification is the process your school uses to confirm the information provided on the FAFSA is accurate. During the verification process, your school may request various documents to verify the information provided on your FAFSA. Errors that occur when entering tax information manually can cause a student to be selected for verification.
Finally, if you do happen to be selected for verification, having used the IRS DRT will simplify the process. If you use the IRS DRT and are selected for verification, you will not have to provide any documentation to verify tax data. Your school will know it is accurate since it was transferred directly from the IRS into your FAFSA.
If you’ve used the IRS DRT in previous years, you’ll notice that it looks a little different this year. The DRT no longer shows any dollar amounts to the student or parent. This change was made to increase the security of your information during the transfer process.
While using the IRS DRT is optional, students and parents are encouraged to use the tool to create a smoother and more accurate application process.
If you’ve been following our posts over the last few weeks, you’re probably aware that the IRS Data Retrieval Tool (DRT) has been unavailable for use on the Free Application for Federal Student Aid (FAFSA). This tool allows FAFSA applicants to download their income tax information from the IRS and import it directly into their FAFSA application. While this situation is inconvenient for some, it’s highly recommended that applicants still complete the 2016-17 and 2017-18 FAFSAs by manually entering in their tax information. The IRS DRT service will be up and running again on October 1, 2017… just in time for the new 2018-19 FAFSA application. Please read IFAP’s announcement for further details on this situation.
Students, Parents and Educators!
News is circulating today that explains why the FAFSA IRS Data Retrieval Tool was taken offline last month and will continue to be offline until the beginning of the next FAFSA cycle, which is October 1, 2017. Read this article from The Washington Post to learn more.
The FAFSA can still be completed by manually entering your 2015 tax information, however the process may take a little longer.
If you’re working on your FAFSA (Free Application for Federal Student Aid) application and plan to use the IRS (Internal Revenue Service) to download your 2015 income tax figures, you may be out of luck. Currently this option, known as the Data Retrieval Tool (DRT), is unavailable. The IRS and the U.S. Department of Education confirmed that the federal government purposefully shut off the IRS DRT amid security concerns and stated that “the online data tool will be unavailable for several weeks.”
If you’re not familiar with the IRS Data Retrieval Tool, it allows students and parents completing the FAFSA to link directly to the IRS and electronically download tax figures into the FAFSA from their tax return. This process allows families a much faster and easier way to enter this information on their financial aid application.
You shouldn’t wait to complete your FAFSA because of the IRS glitch. Instead, you can manually enter your tax information directly into the FAFSA and submit it for processing. You aren’t too late to apply for financial aid if you’re just now completing the FAFSA, but remember that sending it in as soon after the annual start date of Oct. 1 is the best option.
It’s important to note that, at this time, the IRS has not suggested that the Data Retrieval Tool has been attacked or that their systems have been affected. Please follow StartWithFAFSA.org for updates to this current issue with the IRS DRT. We’ll post as soon as the problem has been resolved.
If you’re completing a FAFSA for the 2017-18 school year, there are some new requirements you should be aware of. One of them is the new FAFSA release date. This form now becomes available on October 1 annually, rather than January 1. This allows you to fill out the FAFSA earlier and possibly learn your financial aid eligibility a little earlier, too.
Another change to the FAFSA allows students and families to complete this form using tax information that should already be completed, eliminating the need to update your tax information on your application once your taxes have been filed. Since the latest FAFSA, released on October 1, requires you to use your 2015 tax information, you can pull out your 2015 return and complete your application at FAFSA.gov now! The sooner you apply, the better!
If you’re unsure when to complete the FAFSA or the correct tax information to be used, check out the chart below. Good luck!
Now that you’ve gathered materials and created an FSA ID , it’s time to complete and submit the FAFSA at FAFSA.gov.
Applying online is fast, simple and best of all… it’s safe. The online form allows you to rapidly transfer previously filed tax information and has many “helps and hints” along to way to answer any questions that may come to mind. And, you may choose to send your FAFSA results to up to 10 schools that interest you.
Be sure to enter your information exactly as it appears on your Social Security card. When finished, you will sign with your FSA ID. Don’t forget to hit “Submit” when you’ve completed the form!
The FAFSA is new and improved and will be ready for you faster than ever! Students and parents now have the opportunity to complete the FAFSA, or Free Application for Federal Student Aid, as soon as Oct. 1—three months earlier than before! The earlier you apply, the better, as some financial aid options may be exhausted later in the year.
Another update to the FAFSA makes the process even more convenient. Families will now use tax information that they should have already filed. This means families won’t have to update the FAFSA after they file taxes next year. Use the chart below to find out which forms are right for you.
To complete and submit the FAFSA online, students and parents will both need to create an FSA ID (Federal Student Aid ID) at FSAID.ed.gov. This username/password serves as your signature on the FAFSA and student loan applications and allows you to access other federal aid websites. It can be beneficial for families to create their FSA IDs now in order to speed up the FAFSA application process in October. Once the FAFSA is available, it can be completed online at fafsa.ed.gov.
If you used tax estimates on your FAFSA and it’s been three weeks since you filed your taxes with the IRS online, then it’s time to update your FAFSA with your final tax information. Here’s how:
- Go to fafsa.gov and log in with your FSA ID.
- Enter your Save Key, if prompted.
- Click on Financial Information and change your answer from ‘Will file’ an IRS income tax return to ‘Already completed’ your tax return.
- Answer the questions that follow to see if you qualify to use the IRS Data Retrieval Tool (DRT). If you do, you will be given an option to link to the IRS website and will then transfer your 2015 tax information to your FAFSA.
- Students and parents may each use the IRS DRT to update their individual tax information
- Once completed, be sure to enter your FSA ID on the last page as your signature and then click ‘Submit My FAFSA Now’.
You may also choose to enter your actual tax figures manually if the IRS DRT is not an option for you. Once your updated FAFSA has been submitted, the new figures will be sent directly to the schools listed on your application. If your financial aid office requires any additional information, they will contact you directly. If you have questions, contact the Federal Student Aid Information Center at 1-800-4-FED-AID.