[Oasfaa] 1040 Required? Simplified Needs Test Chart Ready

[Mc Conahay, Pamela K.]

Each year, I prepare a chart to help financial aid administrators
determine if a person who filed a 1040 was actually eligible to file a
1040A or 1040EZ.  The purpose of the chart is to help you and your
applicants accurately answer Questions 34 and 72 on the FAFSA. 
 
I've prepared the chart for use with 2005 tax returns and it is
available on the Oklahoma Association (OASFAA) website at 
 
http://www.finaidapps.ou.edu/OASFAA/forms_bank.cfm  
 
A couple of reminders:
 
a)   THIS CHART DOES NOT DETERMINE WHO IS ELIGIBLE FOR THE SIMPLIFIED
NEEDS TEST.  It simply helps you determine ONE eligibility factor,
whether the person was eligible to file a 1040A or EZ.
 
b)  The AGI limit for filing a 1040A or EZ went up to $100,000 last
year.  That did NOT change the ED requirement that the AGI be no more
than $50,000 to qualify for the Simplified Needs Test.
 
A few new things for the 2005 chart:
 
a)  Line 13 Capital Gain or Loss---I noted that if the taxpayer
indicated he was not required to file Schedule D, you can ignore the
income on this line when determining if he was eligible to file a
1040A/EZ.  This is to be consistent with the FAFSA instructions for
questions 34/72.  
 
b)  Line 45  Alternative Minimum Tax---those subject to paying AMT
cannot do that on a 1040A/EZ and are therefore required to file a 1040.
 
c) Line 10  The state of Oklahoma issued a one time tax rebate in 2005
of $90 for couples and $45 for singles.   The Einsteins in our state
legislature failed to check with the IRS and didn't realize it would be
taxable on the federal returns.  There was a lot of confusion and many
Okies filed 1040s for the sole reason of reporting this $90 or $45
rebate on line 10.  On 3/3/06, the IRS ruled that Oklahoma taxpayers
could include this report on line 3 of the 1040EZ or line 13 of the
1040A.  Because this $90 or $45 COULD have been reported on a 1040A/EZ,
if the taxpayer is from Oklahoma and the amount in line 10 on the 1040
is $90 or $45, treat it as if it were zero for the purposes of
determining whether someone is eligible to file a 1040A/EZ.  If you want
something more official to back this up, see the IRS press release on
the Oklahoma Tax Commission website at
http://www.tax.ok.gov/upmin030306.html.  
 
d)  The Deficit Reduction Act/Higher Education Reconciliation Act of
2006 made a change to the Simplified Needs Test criteria.  This change
expands eligibility for the Simplified Needs Test to students and
parents who received benefits from a "means-tested Federal benefit
program" (examples include programs such as SSI, Food  Stamps, School
Lunch, TANF, special nutrition program for women, infants and children,
or other programs identified by the Secretary).    I can't tell if this
requirement takes effect for the 2006-07 application year or not (or how
we're supposed to know about those benefits).  Pay attention to
information from ED and NASFAA about the effective date of this
provision.  
 
 
Pam McConahay 
Assoc. Dir., Compliance, Training & Lender Relations 
University of Oklahoma Financial Aid Services 
1000 Asp Avenue, Room 216 Norman OK 73019-4078
(405) 325-4617  Fax (405) 325-7608 
pmcconahay at ou.edu 

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