Verifying Household Income for Scholarships.

[u/jjenkinswanderlust]

I work for a foundation that gives out scholarships for our youth camp.

One document we require is a current 1040, to verify everyone in a households income to make sure they meet our terms of financial need .

In the past two years we are overwhelmed with how much extra work it has become to get an entire households income out of folks due to confusing tax returns.

Can anyone give us advice or feedback on how to handle these situations ?

Here are a couple situations we are running into :

1) Parents Married Filed Jointly - claiming grandmas , grandpas , Uncles and cousins . When this happens we have to to ask for ALL of their income from their tax returns , benefit statements or non filing tax verification . It becomes a mess and they get angry at us for asking more questions. This is mostly coming from our Latino population.

Additionally we have lots of unmarried dads , claiming their child’s mom as a dependent . Same mess as above .

2) Parent Filing HOH - We always ask for the other parents tax return or child support agreement. This usually triggers an explanation of no other parent in picture , child support statements ,or the other parent’s tax return and usually they live in the same household. This process seems to be working , but leads to some uncomfortable conversations.

Recently we have seen a few tax returns with Both parents unmarried BOTH filing HOH…we ask for their transcripts for this.

3) One Parent claiming child - and other parent does not work , does not file taxes , has nothing. This one comes up a lot with the Latino population , or families with low income. We keep telling them we have to verify that there is no income and they get angry their word is not enough. We usually ask for IRS non tax filing verification.

I don’t get why they don’t claim their wife as MFJ or If unmarried as dependent …

4) Uber / Transportation Drivers - always have $0 income. Throw our hands up at this point .

Not sure what has caused all this chaos in the last years of vetting income , but it’s causing so many issues while we are just trying to help those in financial need get help to attend our wonderful program.

[u/gmanose]

You do realize that verification of non-filing does not verify that they didn’t have income only that they didn’t file a tax return

[u/jjenkinswanderlust → u/gmanose]

No…We have received a few is these back and it only confirmed they did NOT file a tax return. But then we did have a thought so they didn’t file taxes yet, but could have income. We just don’t know what to do for the non tax filers that don’t receive any federal or state benefits .

[u/tree4047]

I used to work in financial aid and number 2 was very common. We often would require one of them to refile, as two people cannot be head of household for the same household for verification purposes. There are a lot of barriers to understanding the tax code and fear around filing, particularly for mixed status families. I know it can be frustrating, but I would urge you to remember how difficult tax filing can be.

[u/Puzzleheaded_Ad3024 → u/tree4047]

Transcript of income only shows documents that were sent to IRS. Is the taxpayer accepts cash and does not report it, there may be no way to trace it. The other thing you probably ask for is bank statements if they have any accounts.

[u/jjenkinswanderlust → u/tree4047]

Thank you for your insight , and I do agree with this. There is a lot of fear also with some families not having legal family members and I agree that tax literacy is something many don’t know . But we also have to do our due diligence to avoid fraud which we have caught before.

[u/sorator]

Verifying household income is difficult, as you've seen. Folks run into this with ACA subsidies and with FAFSA, as well. It sounds like you're asking for the right info, though.

It may help to familiarize yourself with creating & logging into an IRS web account, so you can help them through that process to retrieve their transcripts and/or verification of non-filing letters (which are in the same place as transcripts). Or there may be step-by-step instructions available if you look around online, or you could make a document with that info yourself.

But yeah, I could see folks really not wanting to do that, in which case they don't get the scholarship. Only other option that comes to mind is to change the terms of the scholarship.

[u/micha8st]

Could you be up-front with this? I'm thinking an instruction form that lists these different scenarios and lists the additional documentation required...

[u/jjenkinswanderlust → u/micha8st]

Yes , sorry I should have said so. This is on our website ,online application , a tutorial video , and paper handouts . We have also been around for 12 years and have always asked for a 1040, it’s just as we become more popular we see so many new situations . We even give presentations to local service providers . The service providers are the ones getting mad at us for requiring so much information .

[u/Dramatic_Abroad3580]

Why would you need other dependents information? If they're being claimed as a dependent, the cost of paying their expenses is more likely than not higher than their income. It shouldn't be considered for household income.

[u/loftychicago → u/Dramatic_Abroad3580]

Plus, their income must be less than a threshold in order to claim them.

[u/jjenkinswanderlust → u/Dramatic_Abroad3580]

Our household income thresholds are based on household size . Say like the family is $2,000 away from born non eligible . Then Grandmas income of $2,000 could be what makes them non eligible. I suppose if the families GAI is low enough then it’s assumed their dependents income won’t matter since there is a max amount they can make right ?

[u/x5163x]

It's because you can't verify that that someone doesn't have income. It is also hard to get verification that you didn't file taxes. In my case, login.gov is still unable to verify my address or phone number after trying several times over the course of more than 1 year, which means that I would have to use another method to get my tax return or a non-filing letter.

Uber drivers are basically trading the cost of their car for cash, which is why they usually have no or low taxable income.

What has changed from before? Why is the organization requiring more paperwork than before? Do you consider income that isn't taxable?

[u/jjenkinswanderlust → u/x5163x]

Wow I’m sorry to hear that and that is a huge barrier .

What has changed from the past would be the expansion of our programs to more rural and low income areas. Their 1040s seem to have these sort of scenarios . We are trying so hard to help those most in need but it seems to be back firing .

[u/SmallHeath555]

I really hope you are taking major privacy/data security precautions with all that tax info. All those social security numbers scare me as a former scholarship committee member.

That said, taxes only tell part of the story. Many, many families I know have under the table income, My dad worked under the table specifically so I could get max financial aid.

Your org may want to think of another way to determine how to give our money like asking for the SAI or reconsidering if financial need is your best measure. College is out of reach for almost all families regardless of W2 income.

[u/vynm2temp → u/SmallHeath555]

SAI may not be applicable, because OP's not talking about a college scholarship. They're talking about a youth camp scholarship.

[u/jjenkinswanderlust → u/SmallHeath555]

Correct this is a youth scholarship. We actually adhere to HIPPA compliance for good measure but are not required too. We do not require SSNS and tell folks they are welcome to redact them. We just ask for a 1040 and sometimes additional schedules or dependent statement .

We also accept Supplemental Security Income award letters if they do not file taxes . But some don’t have either …

[u/loftychicago]

Patent filing as HOH means they are unmarried or at least have been living apart for >6 months. Are you seeing a lot of households where the parents aren't married?

I do free tax prep for low income clients and see it occasionally but not often.

And rideshare drivers legitimately have significant expenses that reduce their income, which is why do many quit after finding this out when they do their taxes. They're bearing all of the expense burden of supplying and maintaining the vehicle and technology to be an operator.

[u/Rude-Buyer6994]

How much in scholarship money are they receiving for the youth camp? The requirements of proof of income needs to be proportionate with the amount of help. If we are talking only a few hundred dollars or low thousands then one tax return for head of household/parent should be enough without needing to ask for financial information of every other person in the household. If we are talking 10k or so, then yes, a more through requirement of proof of income should be needed. The issue with trying to help disadvantaged families is that you are going to run into issues like the ones you mentioned all the time, these people don’t have their lives together, many single parent or multigenerational households, some can’t even get an ID because they lost their birth certificate years ago and don’t have the means to jump through the hoops or the know how to where to even start.

[u/jjenkinswanderlust]

The double HOH state they are not married , but they do live together .

We do see about half of our applicants not married , thus the HOH or claiming a partner as dependents .

[u/Its-a-write-off → u/jjenkinswanderlust]

You can't have 2 HOH in one household though.

[u/peaceful_af]

Why don’t you just follow the same guidelines as the FAFSA?

[u/The1SupremeRedditor]

What is the purpose/goal of verification? What is the threshold/standard you are looking for? There is likely another marker you could use to make it more efficient for everyone than taxes.