The University financial aid staff breathed a sigh of relief last week after the Internal Revenue Service delayed a law that would have required colleges to collect detailed and extensive information on students applying for tax credits.
The IRS said institutions could wait until 2001, a year later than originally scheduled, to begin the stricter reporting procedures for the Hope and Lifetime Learning tax credits.
Currently, schools collect only basic information on students applying for the credits — the student’s name, address, Social Security number and whether the student attended part-time or was in graduate school.
Under the new system, schools will need to collect a host of details including specific information on student account activity, certain school fees, scholarship information and parents’ tax data. While the school has all of the information except that pertaining to parents, some University computer systems will need to be redesigned to put the necessary information together.
According to federal lawmakers and college officials nationwide, these changes won’t be cheap. They estimated that complying with the new reporting requirements will force schools to spend more than $100 million per year on computer programming, staff wages and postage.
But against Washington’s estimates, University financial aid staff said the costs related to complying with the IRS stipulations won’t be particularly burdensome.
“For the smaller institutions I think it’s a much more significant undertaking than for the large institutions,” said Beth Nunnally, director of taxation for the University. Nunnally compares the data that her office will need to collect to the information on employers’ W-2 tax forms.
When the University introduced the Hope and Lifetime Learning tax credits in 1998, it cost the University about $100,000 to get information and forms out to 90,000 students and their parents. That included $35,000 in postage, plus paper materials and staff to answer questions.
In a recent article in the Chronicle of Higher Education, Northern Illinois University spent $85,000 to comply with the current tax credit guidelines. Adhering to the new rules could cost the school up to $250,000.
Getting information out regarding the new reporting procedures might be in the same price range for the University, but with the tax changes now two years away, it’s too early to determine any definite costs.
Still, many college tax officials say they’re unhappy with the IRS for the tax reporting policies alone, not their costs. Some complain that schools are being burdened by collecting data the IRS already has, but which it’s unwilling or unable to process.
Under the new tax laws, schools will need to give the IRS tax information indicating whether a parent claims a student as their dependent, which qualifies the parents for tax advantages.
The IRS already has the information they need on the parents’ 1040 tax form, but due to computer system shortcomings, they can’t link the student’s tax forms with the parent’s. Instead, universities will have to spend their resources collecting both sets of tax information, the student’s and parents’, and send them as a package.
There is some effort to keep the simplified reporting requirement indefinitely, most famously by Rep. Don Manzullo, R-Ill., introduced legislation eliminating all tax-credit reporting requirements for colleges. The bill is backed by House Speaker Dennis Hastert, R-Ill., one of 60 co-sponsors of the bill.