If you plan on attending college, filling out the Free Application for Federal Student Aid (FAFSA) is essential. It’s what the government and schools use to determine what financial aid you’ll receive and how much you’ll get. By filling it out, you’ll get access to valuable grants and federal student loans.
As of October 1, the FAFSA for the 2019-2020 school year is now open. Although the government made changes to the FAFSA that make filling it out easier than ever, it can still be helpful to have extra information, especially when it comes to tax issues.
Here are three common scenarios you might run into when filling out the FAFSA.
The FAFSA requires applicants to use tax information from an earlier tax year, not the year of application. For the FAFSA for the 2019-2020 school year, you’ll use the information on your 2017 tax return, not your 2018 return.
You can simplify the process by using the IRS Data Retrieval Tool. The tool automatically enters your tax information exactly as it was submitted for that tax year, reducing the chances of making a mistake.
But what if your income has changed? If your income dropped from what it was in 2017, your FAFSA application won’t reflect that change, potentially reducing how much financial aid you’ll receive.
If your income has decreased since you completed your 2018 return, fill out and submit the FAFSA, but then call the school’s admissions office to explain your situation. They can manually adjust your financial aid package based on the latest information.
In some cases, you may have income that isn’t typically taxed on your return. However, all untaxed income—such as child support or interest income—must be reported on your FAFSA. Remember, the FAFSA looks at your 2017 return, so enter any untaxed income you received in 2017.
As part of the financial aid process, the government and schools consider what you can afford to pay. As part of that, they look at what assets are in your name.
Although you have to report your income as shown on your 2017 tax return, your savings and bank accounts are a different matter. You must show the balance of your bank accounts as of the date you submit the FAFSA, not what it was in 2017.
Misreporting income or assets is a common mistake that can affect what financial aid you receive. Luckily, it’s easy to avoid. Carefully review your entries to ensure your assets are reported accurately, and make sure you include the current balance.
When it comes time to apply for school, make sure you complete the FAFSA. It’s the first step in getting the financial aid you need to pay for school.
By understanding these three common tax issues, you can make sure you fill out the form accurately and get all the financial aid you’re entitled to receive.
If after receiving your acceptance letter and financial aid package you realize you need more help paying for school, CommonBond offers private student loans that can bridge the gap for you.