Type of Tax Return on the FAFSA

on March 3, 2017

The Free Application for Federal Student Aid (FAFSA) asks questions about the type of tax return to determine whether the family is eligible for the Simplified Needs Test or Auto-Zero EFC.

The answer to this question should be based on the type of federal income tax return the taxpayer was eligible to file, not the type of tax return actually filed. Many tax preparers file an IRS Form 1040 for all their clients, even if the client is eligible to file an IRS Form 1040A or 1040EZ.

Eligible to File a 1040A or 1040EZ

Taxpayers are eligible to file a 1040A or 1040EZ if:

  • Taxable income is less than $100,000
  • The taxpayer does not itemize deductions
  • There is no self-employment income from a business or farm
  • The taxpayer does not receive or pay alimony
  • The taxpayer is not required to file Schedule D for capital gains

This is a simplification. There are other items that can make a 1040 required, such as Schedule E, net operating loss carry-forwards, foreign income exclusion, Health Savings Account deduction, moving expenses, Alternative Minimum Tax (AMT) and household employment taxes.

If a taxpayer filed a 1040 just to claim the American Opportunity Tax Credit or Lifetime Learning Tax Credit and was otherwise eligible to file a 1040A or 1040EZ, they should select the “IRS 1040A or 1040EZ” answer.

If a taxpayer filed a 1040 just to itemize deductions and was otherwise eligible to file a 1040A or 1040EZ, they should select the “IRS 1040” answer. The voluntary decision to itemize deductions makes the 1040 form required.

Not Required to File a Tax Return

If a taxpayer’s income falls below certain income thresholds, they are not required to file a federal income tax return.

If a taxpayer’s income exceeds the filing threshold, they are required to file a federal income tax return. The filing thresholds appear in Table 1-1 of IRS Publication 17 and generally equal the standard deduction plus the minimum number of exemptions that can normally be claimed based on the filing status (e.g., one exemption for single filers, two for married filers and two for head of household).

If a taxpayer selects the “I’m not going to file” answer but reports income above the filing threshold, it will trigger verification of their FAFSA.

Foreign Income Tax Returns

Taxpayers who file a foreign income tax return should use corresponding figures from the foreign income tax return, using the currency exchange rates in effect on the date the FAFSA is filed. Currency exchange rates are available on the Federal Reserve web site.

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