For financial aid applicants who reside in U.S. territories, FSA has released additional guidance about how to properly report income and tax information on the FAFSA for the 2024-2025 academic year. Review the helpful information below to learn more.
POSTED DATE: December 19, 2023
AUTHOR: Federal Student Aid
ELECTRONIC ANNOUNCEMENT ID: GENERAL-23-118
SUBJECT: Puerto Rico and other U.S. Territories Dual Tax Filers Reporting Income and Tax Information on the 2024-25 FAFSA
This electronic announcement provides guidance for schools serving students who are residents of U.S. territories regarding how to report income and tax information on the Free Application for Federal Student Aid (FAFSA®) form when a FAFSA applicant or contributor file both a tax return with the United States Internal Revenue Service (IRS) and a tax return with their local tax authority. This guidance becomes effective for the 2024-25 Award Year.
The Fostering Undergraduate Talent by Unlocking Resources for Education Act (FUTURE Act), 2020, and the FAFSA® Simplification Act (Act) (passed as part of the Consolidated Appropriations Act, 2021, and amended by the Consolidated Appropriations Act, 2022), make many important amendments to the Higher Education Act of 1965, as amended (HEA), including significant changes to the FAFSA form. Both Acts create a streamlined experience for FAFSA applicants (and other contributors) by importing their income and tax information from the United States Internal Revenue Service (IRS) into the FAFSA form.
Effective with the 2024-25 FAFA application cycle, the FUTURE Act Direct Data Exchange (FA-DDX) will be the secure method by which the Department will import applicants’ and other contributors’ federal tax information (FTI) from the IRS. The FUTURE Act only provides authority for the Department to obtain tax information in this manner from the IRS. The FA-DDX does not import tax information from tax authorities for the U.S. territories of Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands. While U.S. territories are not foreign countries to the United States, individuals who file their taxes with a U.S. Territory tax authority will have the same FAFSA experience as someone who has filed with a foreign tax authority.
Individuals who file taxes only with foreign or U.S. territory tax authorities will be prompted to manually enter their income and tax data because they will not have tax information available to retrieve from the IRS. As in previous years, applicants and their contributors (which could include parents or a spouse) will be instructed to enter financial information from their foreign or U.S. territory tax return that is equivalent to the income and tax information found on an IRS Form 1040 or 1040-NR (adjusted gross income (AGI), income tax paid, and certain untaxed income). Applicants and their contributors are still required to provide consent and approval to use IRS FTI, even if such FTI does not exist with the IRS, as a condition of federal student aid eligibility under the FUTURE Act.
Income and tax information from the FA-DDX will be the default income and tax data used to calculate a student’s SAI and Pell Grant eligibility. The Department is aware that some applicants and other contributors who are residents of U.S. territories are dual tax filers who file both an IRS tax return and a tax return with their territory’s tax authority. The 2024-25 FAFSA form will not present dual tax filers with the opportunity to manually report income and tax information not reported to the IRS when FTI was successfully imported using the FA-DDX. As a result, the SAI and Pell Grant eligibility calculations for such applicants may be inaccurate as both calculations will only use the federal tax information on file with the IRS and will not reflect additional income and tax information reported to a U.S. territory tax authority.
In these situations, an applicant may have a different AGI or taxes paid on the U.S. and U.S. territory forms. These discrepancies require correction since the AGI serves as a key factor in determining Federal Pell Grant (Pell Grant) eligibility under the new eligibility guidelines. Additionally, AGI and total income tax paid are two key components for determining the amount of available income that is considered in the SAI formula.
The Department continues to explore ways to improve the FAFSA experience for dual tax filers in U.S. territories. In the meantime, for the 2024-25 award year, schools serving applicants and other contributors from one of the U.S. territories who are dual tax filers should correct the AGI and income taxes paid based on the U.S. territory tax form and use the “professional judgment flag” to override the default use of FTI. While Financial Aid Administrators (FAAs) are directed to use the professional judgment flag for this purpose, the FAA should not consider themselves as making a professional judgment when correcting AGI and income tax paid for a dual tax filer from one of the U.S. territories. This means that, unlike professional judgments based on special circumstances, these corrections do not need to be reviewed and granted on a case-by-case basis and may apply to a population or category of students.
FAAs should set the professional judgment flag on the Institutional Student Information Record (ISIR) to override the FTI and send the ISIR correction with the updated fields either via the FAFSA Partner Portal or the Electronic Data Exchange (EDE). These changes will generate a new FAFSA transaction and a new ISIR that will be sent to the school indicating any changes to the student’s Title IV eligibility.
We recognize the additional burden that this may cause schools and their students who are residents of U.S territories and are dual tax filers. The Department is committed to continuing to review our processes and identify ways to improve the FAFSA experience for these students. For more information on how income and tax information affects the SAI and Pell Grant eligibility calculations, see the previously referenced DCL.
In addition to the DCL mentioned above, the Department has also published the 2024-25 Draft Student Aid Index (SAI) and Pell Grant Eligibility Guide, which includes a detailed explanation of the proposed process for calculating an SAI and determining eligibility for Pell Grants starting with the 2024-25 Award Year. We have also published the 2024–25 Draft FAFSA Specifications Guide, which consolidates all FAFSA-related processing information and guidance into a new, multi-volume resource. These and other resources are available on the FAFSA Simplification Information page on Federal Student Aid’s Knowledge Center.
You may refer additional questions to the Department using the Contact Customer Support form in FSA’s Partner Connect Help Center. To submit a question, please enter your name, email address, topic, and question. When submitting a question related to this Electronic Announcement, please select the topic “FSA Ask-A-FED/Policy.”
We thank you for your patience and continued partnership in implementing these changes.