INTRODUCTION TO THE 2021 TAX FORMS

A free guide for Financial Aid Professionals

to the 2021 tax forms and changes to the 2021 tax code

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 Introduction to the 2021 Income Tax Forms and Tax Code
This document was prepared as a tool for financial aid officers who are considering income adjustment
professional judgments for the 2021-2022 or 2022-2023 academic years, for which 2019 and 2020 are
the base years, respectively. It is designed for aid officers who are reviewing 2021 tax returns to
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support their professional judgment analyses. It is not applicable to reviews of Title IV aid eligibility
during academic year 2023-2024.
When using the 2021 tax return as documentation of income adjustment professional judgments,
remember to apply the appropriate need analysis formula for the year you are awarding aid.
Professional judgments must be considered on a case-by-case basis.
Readers are reminded that they must stay up-to-date with Department of Education guidance and that
guidance supersedes anything published in this document.

About the Author, Robert Weinerman

Robert Weinerman’s background includes over 10 years in senior financial aid roles at the
Massachusetts Institute of Technology and Babson College, as well as 13 years at College Coach, the
nation’s largest provider of college counseling services to corporate America. With experience working
in both financial aid offices and directly with families, Robert possesses a unique understanding of the
role financial aid officers play as well as how they are perceived by students and parents.
Please direct all feedback, comments, and inquiries to Robert at robert@ironbridgeresources.com.
About Iron Bridge Resources
Iron Bridge Resources is a higher education consulting firm providing interim staffing, financial aid
training, data intelligence tools, remote processing solutions, and more to colleges nationwide. Our
leadership team has more than 100 years of combined experience serving the higher education
community. Our consultants are industry experts in financial aid, bursar/student accounts and
enrollment management.
Iron Bridge Resources’ Tax Training for Financial Aid Officers by Robert Weinerman
Iron Bridge Resources offers comprehensive training for financial aid officers. Its two primary programs
cover the aspects of the tax code that financial aid officers are required to understand and how to
review business and real estate tax returns to get a better idea of the business owner’s available
resources. These programs are offered to individual colleges, through state financial aid associations,
and directly to individuals. For information on these trainings and others that may be available, see
https://ironbridgeresources.com/financial-aid-training/.

Important Notes
This document was published on February 28, 2022. The FAFSA cited in this document is the
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November 30, 2021 draft of the 2023-2024 FAFSA for non-incarcerated applicants.
FAFSA line numbers are pulled from that document.
This document will be reissued if subsequent drafts of the FAFSA, or the final version,
have been changed in a way that makes the information contained herein obsolete. See
https://www.regulations.gov/docket/ED-2022-SCC-0024/document for the source draft document.

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What’s New on the 2021 Tax Forms and in the 2021 Tax Code
The primary difference between the 2020 and 2021 versions of Forms 1040 and Schedules 1, 2, and 3
is the amount of detail included on the 2021 forms that was missing from the 2020 forms. This
continues a trend, present since the IRS split the “old” Form 1040 into a smaller Form 1040 and several
numbered schedules in 2018, toward requiring more individual tax items to be reported on each
subsequent year’s tax returns. In 2021, Schedules 1, 2, and 3, which were single page forms from 2018
to 2020, are now each two-page forms. Nonetheless, other than some line number changes, the
FAFSA data derived from the tax forms are all located in similar positions on the 2021 tax forms as they
were in the 2020 tax forms and FAFSA data elements will be simple to find on the 2021 forms.
Most of the changes to the tax code between tax year 2020 and tax year 2021 involve the elimination
(at the time this document was published on February 28, 2022) of some one-time or long-standing tax
breaks. The unemployment compensation exclusion, which allowed taxpayers with adjusted gross
incomes below $150,000 (before including their unemployment compensation) to exclude up to
$10,200 of their unemployment compensation from their taxable income, was a one-time tax break that
applied only to tax year 2020 and is not available in tax year 2021. Similarly, taxpayers who received an
excess advance premium tax credit in 2021 must report the excess on 2021’s Schedule 2, line 2. This
requirement had been repealed for 2020 only.
The tuition and fees deduction has been repealed and does not appear on the 2021 Schedule 1 as a
result. Note that Schedule 1, line 22 now reads “Reserved for future use”. This is where the tuition and
fees deduction would have been reported if it had not been repealed. Taxpayers previously eligible for
the tuition and fees deduction may instead claim the lifetime learning credit, which has higher income
thresholds in 2021 than in prior years to allow more students to claim it.
The above-the-line charitable contribution, which was introduced in 2020 appeared there above the
adjusted gross income (thereby reducing the AGI), has been moved to the line after the AGI and
reduces the taxpayer’s taxable income without reducing the taxpayer’s AGI. This appears to be a
correction to the treatment of the deduction, as tax code had previously allowed charitable contributions
to reduce taxable income only, not AGI.
On Schedule 1, line 8, the “other income” line from 2020 and earlier, has been expanded. Taxpayers
will be asked to separately report sixteen specific kinds of income or deductions that were previously
reported as write-in entries included in an aggregate figure. Included among these specific items is the
Alaska Permanent Fund dividend, which is relevant to the “Did you file a Schedule 1?” FAFSA
question. Line 8z now captures unnamed income not listed elsewhere, and Schedule 1, line 9, captures
the total of the reported other income on lines 8a to 8z. All line numbers on Schedule 1 after “other
income” have been increased by one from the 2020 to the 2021 Schedule 1.
Changes to Schedules 2 and 3 appear after the FAFSA relevant tax lines and therefore will not have an
impact on Title IV aid file reviews.
Finally, the IRS has introduced an updated version of Form 1040-X for use by taxpayers who need to
amend their tax returns. The new 1040-X, which can be used by taxpayers amending their tax returns
for tax years 2019 and later, is a continuous-use form that does not have tax years listed on it.
Taxpayers who need to amend their tax returns from 2018 and earlier should continue to use the older
version of the form. Note: a taxpayer is permitted to use the old version of Form 1040-X for tax years
2019 and 2020 and the IRS will accept the amended return on that form. There is no need for aid
officers to ask taxpayer to recreate their amended return on the updated version of the form if they
receive a properly completed early version Form 1040-X.
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Comprehensive Table of 2022-2023 and 2023-2024 FAFSA Data Elements and the 2020 and 2021 Tax Forms
FAFSA Item FAFSA Line Numbers Location on Tax Forms
All Years 2022-2023 2023-20241 2020 Tax Forms 2021 Tax Forms
Adjusted Gross Income
36 and 84 33 and 81 Form 1040, line 11
(AGI)
Income Tax for 2020/2021 37 and 85 34 and 82 Form 1040, line 22 minus Schedule 2, line 2
44b and 41b and Schedule 1, Schedule 1,
IRA Deduction
Verification 92b 89b line 15 plus line 19 line 16 plus line 20
Items Tax-exempt Interest 44d and 41d and
Form 1040, line 2a
Income 92d 89d
Untaxed Portions of IRA 44e and 41e and Form 1040, (line 4a plus line 5a) minus
Distributions and Pensions 92e 89e Form 1040, (line 4b plus line 5b). Exclude rollovers.
43a and 40a and
Education Credits Schedule 3, line 3
91a 88a
Other FAFSA Items

Wages, Salaries, Tips, etc. Form 1040, line 1

Income Sole Proprietor Income
Schedule 1, line 3
Earned (Schedule C) 38, 39, 35, 36,
from Farm Income 86 and 87 83, and 84
Schedule 1, line 6
Working2 (Schedule F)
Partnership Income
Schedule K-1 (Form 1065), box 14, code A3
(Schedule E, part II)
Health Savings 44h and 41h and Schedule 1, line 13
Other Schedule 1, line 12
Account Deduction4,5 92h 89h (see footnotes)

1 Line numbers are from the November 30, 2021 draft of the 2023-2024 FAFSA for non-incarcerated applicants, which was released to the public for comment on February
24, 2022. Note that some of the tax line references in this FAFSA draft are incorrect. This table contains the correct line numbers from the tax returns.
2 Income earned from working is not a verification item if you are verifying the student or family member as a tax filer. However, you must review it for conflicting information.

It is evaluated separately for each person in a couple and if the total from any of these components (Schedule 1 line 3, Schedule 1, line 6, or Schedule K-1 (Form 1065), box
14, Code A) is negative, the negative value for that component is ignored in the calculation.
3 The fourth component of the income earned from working questions may not be available on the tax return or return transcript. If you are concerned that the income earned

from work may be incorrect, you’ll need to collect this tax form from the applicant or their family member if they have reported partnership income on Schedule E, part II.
4 The “other untaxed income” question on the FAFSA cites this tax item as one of several kinds of income that should be reported. If the answer in the ISIR to these

questions is smaller than the value on these tax lines, the FAFSA question cannot be correct and must be reviewed to resolve the conflicting information.
5 For the first time in 2021, taxpayers are required to report Archer Medical Savings Account deductions (on Schedule 1, line 23). This is very similar to the Health Savings

Account deduction and is reportable untaxed income. I have written the Department to ask whether they will include line 23 in the instructions and if this item is reportable.
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The “Did You File a Schedule 1?” Question
FAFSA questions 35 and 82 (2022-2023 FAFSA) and questions 32 and 79 (2023-2024 FAFSA draft)
ask the applicant or the dependent student’s parent(s) if they filed a Schedule 1 with their Form 1040.
They are instructed to answer “No” if they did not file Schedule 1, or if they did file Schedule 1 but did
not report any income or deductions not listed in the instructions on page 9 of the FAFSA.
Students (and spouses) or dependent student’s parent(s) who filed a Schedule 1 to report only the
income or adjustments (deductions) listed in the table below should answer “No” to this question.

Location on Schedule 1
Schedule 1 Tax Item
2020 Tax Forms 2021 Tax Forms

Unemployment Compensation Schedule 1, line 7

Alaska Permanent
Schedule 1, line 86 Schedule 1, line 8f
Fund Dividend
Unemployment Compensation
Schedule 1, line 86 N/A7
Exclusion (UCE)
Educator Expenses Schedule 1, line 10 Schedule 1, line 11
IRA Deduction Schedule 1, line 19 Schedule 1, line 20
(personal deduction only) (line 15 triggers a “Yes” answer) (line 16 triggers a “Yes” answer)
Student Loan
Schedule 1, line 20 Schedule 1, line 21
Interest Deduction

This question is related to the applicant’s eligibility for an automatic Zero EFC or for their EFC to be
calculated using the simplified EFC formula. For dependent students, the answer provided by the
student’s parent(s) factors into this eligibility. For independent students, the answer is asked of the
student and, if they have one, their spouse. To qualify for one of these alternative formulas, the
applicant must meet a non-income-based criterion and an income-based criterion.
The applicant can meet the non-income-based criterion if they meet one (or more) of the criteria listed
here8:
• The student/spouse or one of the dependent student’s parents is a dislocated worker.
• Anyone in the FAFSA household) qualified for certain means-tested federal benefits in the base
year or the year after the base year.
• The answer to the “Did you file a Schedule 1?” question is “No”.
If the applicant does not qualify for an alternative formula based on one of the first two bullets, then,
effectively, a “Yes” answer to the Schedule 1 question disqualifies them from the simplified formulas.
See the EFC Formula Guide for the income-based criteria for each aid year. Note also that an
independent student must have a dependent other than the spouse who is included in their FAFSA
household size to qualify for an automatic zero EFC.

6 On the 2020 tax forms, Schedule 1, line 8 collected several different tax items. Taxpayers indicated the items reported by
writing in a word or code on lines provided on the Form. In aid year 2022-2023, if an applicant or family member reported
income or deductions on Schedule 1, line 8, they were required to answer “Yes” to the “Did you file a Schedule 1?” question if
they reported anything other than Alaska Permanent Fund dividends or the unemployment compensation exclusion. Note: the
FAFSA instructions did not mention the unemployment compensation exclusion, but it does not force a “Yes” answer to the
“Did you file a Schedule 1?” question in academic year 2022-2023.
7 The unemployment compensation exclusion (UCE) was only available in tax year 2020.
8 Again, it is the independent student (and spouse), or dependent student’s parent(s), who must meet one of these criteria.

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Appendix – Additional Issues for Tax and Need Analysis Wonks Only!
Changes to the 2021 tax forms and tax code will impact the way some tax items are reported on the
FAFSA and may impact the outcome of the need 2023-2024 need analysis. In the absence of guidance
from the Department of Education, I am speculating about these impacts. Remember, this document
focusses on the 2021 tax forms as documentation used to support a professional judgment and does
not address basic need analysis or verification for academic year 2023-2024.

The Refundable Child Tax Credit and Its Impact on Form 1040, line 22
The American Rescue Plan Act (ARPA) “enhanced” the child tax credit in 2021 (and at the time of this
document’s publication, only in tax year 2021). From 2018 to 2020, the child tax credit for children
under the age of 18 by the end of the year was $2,000, of which $1,400 was refundable. In 2020, the
child tax credit was reported on Form 1040, line 19 and reduced the income tax after credits (Form
1040, line 22), The refundable part of the credit became available only if the child tax credit was larger
than the taxpayer’s tax burden after non-refundable credits, including the child tax credit, were applied.
In other words, the child tax credit reduced the income tax figure that used in the need analysis.
In 2021, the credit increased to $3,600 (for each child under the age of six) or $3,000 (for each child
from ages 6 to 17) and was made fully refundable. Eligible taxpayers and non-filers received half of
their child tax credit as a series of payment from the IRS during the last half of 2021. Note that these
“enhancements” (the increase in the amount of the credit, its refundability, and the pre-payments) were
limited to taxpayers with modified adjusted gross incomes below certain thresholds.
Because the credit was pre-paid to some taxpayers, the IRS changed the way the credit is claimed on
the 2021 Form 1040. For most taxpayers, the entire child tax credit is reported on 2021’s Form 1040,
line 28, as a refundable credit, instead of any of it appearing on 2021’s Form 1040, line 19, as it was in
2020. Since the FAFSA asks for the income tax after credits (Form 1040, line 22) minus the excess
advance premium tax credit repayment (Schedule 2, line 2), the child tax credit will not reduce the
FAFSA “income tax for 2021” as it had in prior years, for most taxpayers.
Here's an example. Let’s assume that a taxpayer had a tax table tax (2020/2021 Form 1040, line 16) of
$7,000, and was entitled to a child tax credit for their three-year-old child. In 2020, a $2,000 child tax
credit would have claimed on Form 1040, line 19, and would have reduced the tax after credits, (Form
1040, line 22), to $5,000 ($7,000 from line 16, minus the $2,000 child tax credit). In 2021, the entire
$3,600 tax credit is claimed on Form 1040, line 28, and the tax after credits on line 22 is the entire
$7,000. Since we subtract the income tax for 202X from the need analysis total income as part of the
federal methodology, and since the child tax credit reduced the income tax in tax year 2020 but does
not do so in 2021, the amount of tax we subtracted from the income in 2022-2023 was smaller than the
amount of tax we will subtract from the income in 2023-2024. This will result, all other things being
equal, in lower EFCs in 2023-2024 (because the tax allowance is larger) than in 2022-2023.
If you are looking at the 2021 tax return as documentation for an income reduction professional
judgment, you may want to recalculate the value on Form 1040, line 22, using the 2020 tax code, to
account for this change. You are not required to do this, but if you do, your results would be more in-
line with the results of cases where you do not use professional judgment.
Recovery Rebate Credit vs. the Third Economic Impact Payment
Taxpayers who did not receive the full amount of their third economic stimulus payment (EIP3) in 2021
can get the rest of it by claiming the recovery rebate credit on Form 1040, line 30. For taxpayers with
modest incomes, the EIP3 was $1,400 each for the taxpayer, spouse, and dependent, as long as each
of these people had a valid social security number on the date for the tax return was due. A family of

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five, each of whom had a social security number, was entitled to a $7,000 EIP3. A married couple in
which one spouse did not have a social security number was entitled to an EIP3 of only $1,400.
The EIP3 was a prepayment of the 2021 recovery rebate credit and was based on the taxpayer’s 2020
(or 2019) tax return (if they had filed one of these returns). If the income on this return was higher than
the 2021 income, or there were more dependents on the 2021 return than the earlier return, taxpayers
may have received less EIP3 than the law allowed. The recovery rebate credit “tops off” the payment so
that the taxpayer receives the correct amount of EIP3 funds.
Institutions that treat refundable credits as untaxed income in their institutional need analyses should
make sure to add back the recovery rebate credit and the EIP3, to capture all the funds received by the
taxpayer. Neither the recovery rebate credit nor the EIP3 is considered untaxed income for the FM.
New Untaxed Income Items Appearing on the 2021 Tax Forms
The expanded Schedule 1 now contains three items that are (or may be) reportable as untaxed income
on the FAFSA. In 2020, these reported as write-ins on Schedule 1, line 22, and were easy to overlook.
In 2021, since they have their own line, they can’t be missed. On the other hand, they are not
specifically mentioned in the FAFSA instructions, so applicants may fail to include them in the proper
place on the FAFSA as untaxed income. This does not mean they can be overlooked by financial aid
administrators addressing conflicting information, however. These items are:
• Schedule 1, line 23 – the Archer Medical Savings Account (MSA) deduction
The Archer MSA deduction is very similar to the Health Savings Account (HSA) deduction
(which appears on Schedule 1, line 13). It is hard to imagine that the HSA deduction should be
reported as other untaxed income on the FAFSA (it is cited as reportable untaxed income on the
FAFSA) and the Archer MSA deduction would not be.
• Schedule 1, line 24f – Contributions to section 501(c)(18)(D) pension plans
This line on the 2021 tax return will be the same value as Form W-2, box 12, code H, which is
reportable as “Payments to tax-deferred pension and retirement savings plans” (the first
question in the untaxed income section) on the FAFSA. Since we are not required to collect
W-2s from tax filers, we may not see this code often, but now that the value appears on
Schedule 1, we should make sure it is included with 401k, 403b, and other payments to tax-
deferred plans. In addition, it is important not to double count it if we do receive the W-2. Note
that in tax year 2020, this deduction was included as a write-in on Schedule 1, line 22.
• Schedule 1, line 24g – Contributions by certain chaplains to section 403(b) plans
This is another contribution to a tax-deferred payment plan that should be reported as such, that
we may not have noticed in the past as it was included as a write-in and did not have its own
line on the tax return.
Note that we should not treat Schedule 1, line 24j – Housing deduction from Form 2555, as untaxed
income even though it is a tax break for housing. This is part of the foreign earned income exclusion
(FEIE). The instructions on the FAFSA are clear – the FEIE is not reported as untaxed income.
Coronavirus Related Distributions (CRDs)
Many taxpayers withdrew funds from their IRAs or pension plans to help them address coronavirus
related financial hardships. Taxpayers who withdrew CRDs were allowed to report ⅓ of the 2020
distribution on each of their 2020, 2021, and 2022 tax returns, to spread the tax burden out across the
three years. If you did a professional judgment for tax year 2022-2023 to remove the income from a
CRD, and the taxpayer elected to spread the income from the CRD across 2020, 2021, and 2022, you’ll
want to remove the second years’ worth of CRD income from the 2021 income as well.

IRS Form 8915-F, Parts II and II will show evidence that income on Form 1040, lines 4 or 5 are from
2020 CRDs. If the taxpayer did not make any other IRA or pension withdrawals in 2021, the 2020 CRD
is reported on 2021’s Form 1040, line 4b or 5b, and Form 1040, line 4a or 4b will be blank.
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