24 Oct IRS Changes That Could Protect Your Identity When Applying for Financial Aid
In this age of digital applications for everything, we are all becoming more aware of security concerns. We are told to scrupulously guard our personal data and Social Security number, yet many online applications ask us to provide this very information. Hackers find their way into these sites, steal the numbers, and then embark on an identity theft binge.
One place where the full Social Security Number, or SSN, is used is with our income tax returns. Once the information has been filed, we may find that we need to request transcript data for a variety of reasons. A transcript is different from an actual copy of a tax return in that it contains only the most essential income and tax information. This information may be needed in conjunction with income verification for everything from student loans to college financial aid.
In previous years, taxpayers who requested data received a transcript that contained personally identifiable information. Effective September 23, 2018, the IRS changed its tax transcript format so that this information will be redacted from the Form 1040 series transcripts. The IRS states that the new format will still have enough financial information available to meet the needs of anyone who requests a transcript. For example, recipients will be able to view information such as wages earned and withholding tax withheld in order to verify income information for a loan application or to help complete a prior-year tax return. The following information will be provided on the new transcript:
• Last 4 digits of any SSN listed on the transcript: XXX-XX-1234
• Last 4 digits of any EIN listed on the transcript: XX-XXX-1234
• Last 4 digits of any account or telephone number
• First 4 characters of the last name for any individual
• First 4 characters of a business name
• First 6 characters of the street address, including spaces
• All money amounts, including balance due, interest and penalties
Taxpayers can visit the IRS website to request a transcript online, and will receive their information in this new default format. The IRS has also posted an updated Form 4506-T and Form 4506T-EZ, Request for Transcript of Tax Return, that have a new Line 5b for a 10-digit Customer File Number. Users can now create any 10-digit number, except for their own SSN, for use as an identifier. This number is posted on the transcript in place of the SSN so the transcript can be matched to the taxpayer. Colleges might use a student number to match the information with a financial aid application.
If necessary, you can still order a complete wage and income return through the IRS, but will be required to authenticate your identity. This item will be mailed to the address of record within five to ten days. The process for distribution of transcripts to fax numbers and third-party addresses is being reviewed as it also poses a threat to taxpayer data. The IRS plans to stop faxing transcripts to both taxpayers and to third parties within the next few months, and will stop mailing transcripts to third parties sometime around May 2019.
How Do IRS Transcript Changes Affect Students And Financial Aid Applications?
Fortunately, this does not affect the basic process of completing the FAFSA. Students and parents can continue to use the IRS Data Retrieval Tool to populate their Free Application for Federal Student Aid with information from the appropriate year’s tax returns. Follow the normal steps as in previous years.
The changes might come into effect if your application is selected for verification. In these situations, colleges will sometimes request additional documentation in order to determine your eligibility for financial aid. This might require the submission of a tax transcript. Student who are searching for college scholarships that are income-based or applying for private student loans might also need to obtain tax transcripts to support their income claims.
Overall, these changes should not affect the student’s ability to apply for and receive college financial aid, but it is certainly something you want to be aware of if you need to acquire tax transcripts for any reason.