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Tax delays affecting FAFSA apps

By Kay Bell ·
Thursday, March 14, 2013
Posted: 4 pm ET

Waiting for a tax refund is never fun. But delays in processing around 600,000 tax returns this filing season is particularly frustrating for some students.

Not only are many of them waiting for much-needed cash back from Uncle Sam, they also are applying for financial aid to cover their school costs. And they need final tax return data to finish up those funding requests.

The problem is that the tax returns in question are being slowed because of the way questions were, or more accurately weren't, answered on a tax credit form.

And here's the irony. The problematic tax paperwork is Form 8863, which is used to claim education tax credits.

H&R Block customers make up most of the affected taxpayers. The tax preparation giant says it filled out Form 8863 as it had in previous tax seasons, leaving the checkbox answer to one question blank if the answer was "no." The Internal Revenue Service says that won't fly this year. Where a question asks for a "yes" or "no" answer, you must check one of those.

A quick observation: While there's been lots of finger pointing and more than enough anger and blame to go around, the IRS might want to make sure it lets all tax preparers (and filers) know of any changes to its handling of returns before a filing season starts. Just sayin'.

Meanwhile H&R Block and the IRS are working to resolve the issue.

H&R Block issued a statement saying that, "The IRS has informed us and other impacted providers that they are currently processing these returns."

Some clients, noted H&R Block, are seeing that their returns are now moving through the IRS system. For others, however, there will be a wait. The IRS review of the problematic returns could take up to six weeks.

An assignment for aid-seeking students

Some students who are waiting for their tax returns to clear are already not happy with this year's delayed filing season.

They had to wait until Feb. 14 to even submit their returns because filings that included Form 8863, delayed by late congressional action on the "fiscal cliff" situation, were on hold until the IRS updated the form and its computer system to match the new American Taxpayer Relief Act provisions.

Now they are facing deadlines to submit their Free Application for Federal Student Aid, usually referred to as FAFSA.

The FAFSA information is used by the U.S. Department of Education to determine just how much money a student or his or her family will be expected to contribute toward college. Most colleges and universities also rely on the form to determine a student's financial aid eligibility.

And tax information is a critical part of the FAFSA process. In fact, last year the IRS created an online data retrieval tool that automatically transfers information from the applicant's tax return to the federal financial aid form.

But if the applicant's tax return isn't processed, the online FAFSA option is useless.

So, if you'll pardon the pun, it's back to old school.

"There is no need for students to worry," says Department of Education spokeswoman Jane Glickman. "Students should complete the FAFSA using estimates and get them submitted in order to meet state deadlines. They can always go back and update the information once the tax return is completed."

It's not ideal, but it is a lesson in flexibility. That comes in handy not only in the classroom, but when dealing with taxes.


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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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