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Possible to avoid Alternative Documentation of Income that results in HIGHER payments (than AGI)?
I will be starting IBR this year for the purposes of pursuing PSLF—I have filed as married filing separately (MFS) and I live in a community property state (Wisconsin), so I believe I will be required to submit alternative documentation of income (i.e. my paystubs, bank interest statements, etc.) for this year, and in every future year that I file as MFS (and filing separately from my spouse does make sense for me to do).
Heather and others, I am wondering -assuming that I am required by my loan servicer (FedLoan) to provide alternative documentation of income- is there any way that I can have my payments based off of what my true AGI would be (i.e. what my AGI would be if I filed as MFS in a state that WASN’T a community property state), instead of off my gross income?
I’m interested in knowing this, because -for instance- I have stocks that have large capital losses, which would significantly lower my AGI when I sell them, but submitting alternative documentation of income wouldn’t capture that capital loss.
Hi again Heather and others—I hope I posted in the right place—any feedback about this would still be very much appreciated!
Also, a second question, along the same lines as the one I posted above: for years when I work half a year (or my income changes for half of a year), my AGI would be half what my gross salary (as determined by looking at a paystub) would be—does the loan servicer take this into account? If so, what should I submit, so that they will take this into account?
So, I wrote FedLoan (my loan servicer) an e-mail about this (see immediately below), and I received the response (further) below, which I hope is helpful to others. FedLoan apparently doesn’t require Alternative Documentation of Income to be submitted, even if you are filing as married filing separately in a community property state (as long as your income has NOT changed significantly since the tax return was filed).
My e-mail to FedLoan:
Hi FedLoan—I sent this e-mail last week, but I only received a generic response about billing and payment options in response—could this e-mail please be escalated to a customer service representative who can answer my specific questions below? Thank you so much!
1. If I move to a community property state (Wisconsin) and file my income taxes as married filing separately, will FedLoan require me to provide Alternative Documentation of Income for Income-Based Repayments (IBR), instead of providing the AGI from my income tax form?
2. If I would be required to provide Alternative Documentation of Income, does FedLoan take into account situations such as capital losses and/or employment for less than a full year, when determining the IBR monthly repayment amount?
3. If FedLoan does take capital losses and/or employment for less than a full year into account when requiring Alternative Documentation of Income, what should I submit with the Alternative Documentation of Income form to document these situations (capital losses and/or employment for less than a full year)?
I look forward to hearing back—thank you for your assistance!
FedLoan’s response:
Thank you for contacting FedLoan Servicing!
Your Adjusted Gross Income (AGI) and your spouse’s (if applicable), as determined by the Internal Revenue Service (IRS), is used for with the calculation of your Partial Financial Hardship installment. Income for you, and your spouse (if applicable) may also be determined though alternative documentation, such as pay stubs. Alternative documentation of income is only necessary if you did not file a tax return for the two most recent tax years, or if your income has changed significantly since you filed your most recent tax return. If alternative documentation is necessary, only your gross amount of income is used with the calculation to determine your Partial Financial Hardship installment. It is necessary to include the frequency of which the income is received, and unless otherwise indicated, the income is extrapolated to an annual yearly amount.
FedLoan Servicing is not the IRS and cannot determine appropriate income deductions from provided alternative documentation of income information.
Since e-mail is not a secure means of communication, we recommend that you use the “Contact Us” links on our website, http://www.MyFedLoan.org, to submit inquiries via a secure e-mail form. You may also call us toll-free at (800) 699-2908 to reach our Customer Service Department, which is open Monday through Thursday from 8:00 AM until 11:00 PM (ET) and Friday from 8:00 AM until 9:00 PM (ET).
Sincerely,
William
FedLoan Servicing
Alternative documentation is not REQUIRED based on a borrower’s residence in a community property state. It’s that IF a borrower earns less than his or her spouse, the tax return will tend to overstate his or her separate income, and the borrower may CHOOSE to file alternative documentation in order to demonstrate that.
Thanks for posting this.
Yours,
Heather
Hi Heather—thanks so much for your response and confirmation, I really appreciate it.