There are several common questions about how to handle specific situations on the Free Application for Federal Student Aid (FAFSA).
Questions about Demographic Data Elements
Head of household tax filing status is prone to error and can trigger verification. To file as head of household, the taxpayer must be unmarried or considered unmarried on the last day of the tax year. The taxpayer must also have paid more than half the cost of keeping up the home for the year and have a qualifying person living with him or her for more than half the year. Some of the more common scenarios in which taxpayers incorrectly choose head of household filing status include:
- Both parents file as head of household, both saying that they paid more than half the cost of keeping up the same home. Two taxpayers who live together cannot both be paying for more than half the cost of keeping up the same home.
- A taxpayer is considered unmarried if he or she has not lived in the home for the last six months of the tax year and has had a qualifying child, as opposed to a qualifying person, live with him or her for more than half the year. A qualifying person is sufficient for a taxpayer who is unmarried. But, a taxpayer who is married must live with a qualifying child to be considered unmarried. This is a stricter set of requirements.
- Some taxpayers choose head of household filing status just because it yields a lower tax liability, without really knowing whether they qualify.
The question about whether the student was born prior to a particular date can be confusing. Simplify the question by comparing the student’s birth year to the year in the question.
Questions about Income and Taxes
Questions about U.S. income tax paid must report a specific line number from the federal income tax returns, not the amount withheld, estimated tax payments, total payments or remaining tax liability. Self-employed taxpayers often wonder why the self-employment tax line from federal income tax returns is not added to the total federal income tax line on the FAFSA.
The FAFSA does not do this, because doing so would double-count the self-employment tax figure in the formula. The employee’s share of FICA taxes is automatically calculated by the FAFSA, based on income earned from work. The employer’s share is subtracted when calculating adjusted gross income (AGI) for self-employed individuals and excluded from income for all others. So, adding self-employment tax to total federal income tax would double-count it.
A common error involves swapping adjusted gross income (AGI) and federal income tax figures on the FAFSA or reporting federal income tax equal to AGI. The lines are adjacent on the FAFSA, so it is easy to make mistakes if one does not use the IRS Data Retrieval Tool.
Fiscal year tax filers should pick the tax year that overlaps the most with the base year.
Only the taxable portion of a scholarship should be reported on the FAFSA. The answer to this question is subtracted from income on the FAFSA, so that any financial aid funds included in taxable income are excluded.
Questions about Child Support
Do not confuse child support paid with child support received. This is a common error.
Child support received outside of a legal child support agreement should be reported as untaxed income.
Foster care and adoption assistance payments are not reported on the FAFSA.
Questions about Untaxed Income
Untaxed income to the student includes cash support but untaxed income to the parents does not. This is due to an intentional loophole enacted by Congress. Cash support includes financial support, living expenses and college costs.
Questions about Retirement Plans
Involuntary pension and retirement plan contributions, such as to state public employee retirement systems, are not reported on the FAFSA. Voluntary contributions are reported. Examples include the IPERS (Iowa), KPERS (Kansas), OPERS (Ohio) and CAL PERS or STIRS (California) retirement systems.
Employer contributions to retirement plans are not reported on the FAFSA.
A tax-free return of contributions from a Roth IRA is reported as untaxed income on the FAFSA.
Questions about Other Assets
Assets are reported as of the date the FAFSA is filed, not the last day of the tax year.
Don’t confuse Supplemental Security Income (SSI) with Social Security Disability Insurance (SSDI), despite the similar acronyms.
Don’t confuse the Earned Income Tax Credit with income earned from work, even though both terms mention “earned income.”
How to Enter Numbers on the FAFSA
Report whole dollar amounts, without the cents.
If a dollar amount is greater than the size of the field, enter all 9s.
Tips about the Application Process
Applicants should print and retain a copy of the Confirmation Page, as it provides proof of the date and time the FAFSA was filed and shows the student’s expected family contribution (EFC).
Financial aid does not transfer from the student’s previous college to the new college, so a transfer student must add the new college to their FAFSA.
If a college financial aid administrator believes that there is a conflict between information reported on the federal income tax returns and the FAFSA, or that there is incorrect information on the federal income tax return, they can require the family to file an amended federal income tax return to resolve the conflicting information or correct the inaccurate information. Conflicting information must be resolved before aid can be disbursed. If the family refuses to comply, they will not get any financial aid.