How Do We Verify Foreign Nontax Filers Starting With the 2024-25 Award Year?

This AskRegs Knowledgebase Q&A was updated on December 20, 2023 to reflect additional clarification from the U.S. Department of Education (ED), received since NASFAA's December 12, 2023 webinar, Verification 2024-25.

Scenario: The student is a U.S. citizen. Both parents live in a foreign country, do not have Social Security Numbers, and did not file taxes in the U.S. or abroad.

Answer: When both parents live in a foreign country, they answer the FAFSA questions as written, depending on whether they had income in the foreign country. For adjusted gross income (AGI), the contributor calculates an AGI using all wages, dividends, capital gains, business income, retirement distributions, and other income, minus any adjustments to that income. For income earned from work, the contributor totals the items that would appear on 1040 Line 1z plus Schedule 1 Line 3 plus Schedule 1 Line 6 if a U.S. tax return were filed (e.g., wage, business, and farm income).

When selected for verification, you follow the guidance provided for a nontax filer in the September 19, 2023 Federal Register [bolded for emphasis]:

“For an individual who has not filed and, under IRS or other relevant tax authority rules (e.g., the Republic of the Marshall Islands, the Republic of Palau, the Federated States of Micronesia, a U.S. territory or commonwealth or a foreign government), is not required to file a 2022 income tax return—

(1) A signed and dated statement certifying—

(a) That the individual is not required to file a 2022 income tax return; and

(b) The sources and amounts of earnings, other income, and resources that supported the individual(s) for the 2022 tax year;

(2) For individuals without a Social Security number (SSN), Individual Taxpayer Identification Number (ITIN), or Employer Identification Number (EIN), that they do not have an SSN, ITIN, or EIN;

(3) A copy of IRS Form W–2 for each source of 2022 employment income received or an equivalent document; and

(4) Except for dependent students, verification of nonfiling for individuals who would file a return with a relevant tax authority other than the IRS dated on or after October 1, 2023.”

According to guidance NASFAA has received from ED, foreign nonfilers are not eligible for an automatic -1500 student aid index (SAI). Therefore, when a foreign nonfiler completes the FAFSA, ED will open the income and associated fields and instruct them to enter their income information manually using the information that would be the equivalent dollar amounts from a U.S. tax return. This will include AGI, taxes paid, untaxed income, etc. Yes, a foreign nonfiler will be asked to provide an AGI, taxes paid, and untaxed income that would normally only appear on a U.S. tax return. The point is that this population often has earned income and paid taxes, and ED needs to calculate an SAI for them (instead of giving them an automatic -1500 SAI).

So, when you verify income for the nonfiler, you:

1. Collect the signed statement and W-2 equivalents;
2. Pull out the income and adjustments that would constitute an AGI (listed above) and enter that total in the respective AGI fields; and
3. Pull out the income earned from work amounts that would appear on 1040 Line 1z plus Schedule 1 Line 3 (business income) plus Schedule 1 Line 6 (farm income) if a U.S. tax return were filed and enter that total in the respective income earned from work fields.

When FAFSA processing begins we hope to have a clearer picture of the full effect of the need analysis changes for foreign tax filers and nonfilers.