The FAFSA form is the first step in the financial aid process. Because it’s important to complete the form correctly, this chapter discusses some of the more difficult questions that arise. While the chapter follows the organization of the paper application and the ISIR, the guidance applies equally to the FAFSA online. To see how FAFSA data are used to calculate the expected family contribution (EFC), please refer to Chapter 3.
The FAFSA form is organized as steps, each consisting of a group of related questions. There are also instructions on how to fill out the form. The guidance in this chapter supplements those instructions and explains why some of the questions are needed on the FAFSA form.
Students can get advice on filling out the FAFSA online at https://studentaid.gov/resources. You may want to link to this reference from pages that students use on your website or use certain graphics, videos or publications referenced on the site when working with your students.
The parents mentioned are those of dependent students. The numbers in parentheses are for the items as they appear on the SAR, ISIR, paper FAFSA, and FAA Access to CPS Online. As of the date the FAFSA form is signed, it is considered a “snapshot” of the family’s information that can be updated only in certain circumstances and only for certain items; see Chapter 4.
The following sections discuss many of the important questions found within each Step on the FAFSA form.
This step identifies the student and establishes his or her aid eligibility based on factors such as citizenship and educational level (see also Volume 1: Student Eligibility). Questions in Step One are included to help the school package awards and to eliminate the need for students to fill out a separate state or school financial aid form.
Please note: As described in Dear Colleague Letter GEN-21-04, the FAFSA Simplification Act eliminated the prohibition on receiving Title IV aid for students with drug-related convictions and the requirement, for Title IV eligibility purposes, that male students register with the Selective Service system before the age of 26. The Department began implementing these changes starting with the 2021-2022 award year. For the 2022-2023 award year, though institutions will still see Comment Codes 30, 33, or 57 for Selective Service issues and Codes 53, 54, 56, or 58 for drug convictions, failing to register with the Selective Service or having a drug conviction does not impact a student’s Title IV aid eligibility and must be ignored by the institution. In addition, for the 2022–2023 award year, the Department will include language in the Comment Codes stating that no further action is necessary on the part of the student or the institution.
Student’s name (1–3). The name, with other identifying information, is used for several data matches. Because the U.S. Department of Education (ED) matches the student’s name and Social Security number (SSN) with the Social Security Administration (SSA), the name here should match the one in the SSA’s records, i.e., as it appears on the student’s Social Security card.
Permanent mailing address (4–7). This is the student’s permanent home address, with two exceptions: incarcerated students should use the address of the facility they are in, and homeless youth should use a mailing address where they can reliably receive mail. That can be the address of a relative or friend who has given them permission to use it, or it can be their school’s address as long as they have contacted the school for permission and instructions on how mail they receive at the school will reach them. As soon as incarcerated and homeless students have more permanent housing, they should update their address on the FAFSA form.
Student’s SSN (8). Students must have an SSN to apply for federal student aid except as noted below. If they submit FAFSA information without an SSN, the FAFSA form will be returned unprocessed. To get an SSN or to find out what the number is if they lost their Social Security card, they must contact the local SSA office. Contact the SSA at 1-800-772-1213 or https://www.ssa.gov/ssnumber/ for more information. Students who enter the wrong SSN on their FAFSA form can correct it in a few ways: through the school, by submitting a corrected paper SAR, or by filing a new FAFSA form. If they don’t have a copy of their SAR, they can call the Federal Student Aid Information Center (1-800-433-3243) and have one sent to them, which they can correct and mail to the address on the SAR. However, correcting the SSN through the school or with the SAR will not change the number in the student’s identifier; that will remain the original SSN and may later cause confusion. Completing and submitting a new FAFSA form solves this problem. Note that there are other rare instances where a student must submit a special “correction application.” See the June 22, 2017, announcement. Persons from the Freely Associated States (FAS)—the Republic of the Marshall Islands, the Federated States of Micronesia, and the Republic of Palau—typically do not have SSNs. Students who are completing a FAFSA form for the first time and who indicate that their state of legal residence is one of the above Pacific island groups should enter “666” as the first three digits of their SSN field and leave the remaining six digits blank. CPS will then assign them an identification number. Students from the FAS who have submitted a FAFSA form before and were issued such a pseudo-SSN will enter it in the SSN field. It is important that they use the same number on all subsequent FAFSAs because it allows for more accurate information on Pell Grant Lifetime Eligibility Used (LEU). If a student does not use the same pseudo-SSN across award years—if on a subsequent FAFSA form he or she either gets a new pseudo-SSN and uses that or if he or she uses a real SSN that he or she obtained from the SSA—the school must contact the COD School Relations Center so the multiple student records can be merged into one and the correct LEU can be calculated. Also, if Pacific island students file with a real SSN, schools will need to have an alternate way, other than the pseudo-SSN, of identifying that population to ensure that the correct award limitations described in Volume 1, Chapter 2 of the Handbook are in place for those students.
Student’s email address (13). If the student provides this address, he or she should get an email with a link to his or her online SAR data within one to three days after the CPS receives his or her application. The Department will also use this email address to correspond with the student regarding his or her application.
Citizenship status (14). Examples of eligible noncitizen categories are given in the FAFSA instructions, and a detailed discussion of citizenship issues can be found in Volume 1: Student Eligibility. Only U.S. citizens or certain classes of noncitizens are eligible for Title IV aid; however, other students can still submit the FAFSA because they might be eligible for aid from institutional, state, or private sources that do not have the same requirements but use FAFSA information.
Student’s marital status (16 and 17). This is marital status “as of today”—the day the application is signed. Marital status cannot be projected. It can be updated in limited circumstances; see Chapter 4. Same-sex marriage and the FAFSA form—In 2013, in United States v. Windsor, the Supreme Court ruled that Section 3 of the Defense of Marriage Act (DOMA) was unconstitutional because it violates the principles of due process and equal protection. As a result, same-sex couples who have married in a domestic or foreign jurisdiction that recognizes the marriage should complete the FAFSA as a married couple regardless of whether the jurisdiction in which they reside or the student attends school recognizes the marriage. This applies to independent students and to the parents of dependent students. See DCL GEN-13-25 for more information.
Student’s state and date of legal residence (18–20). This is used to figure the allowance for state and other taxes for the EFC calculation. It also indicates which state agency should receive the student’s FAFSA information. States have varying criteria for determining whether the student is a resident for purposes of their financial aid. However, residing in one state for five years will meet any state’s criteria. Therefore, a person answering “Yes” to Question 19 will likely meet the residency requirements of the state reported in Question 18, while the state eligibility for a person answering “No” will depend on the date reported in Question 20 and the state’s requirements.
Student’s gender and Selective Service registration (21–22). Prior to the 2021–2022 award year, male students (i.e., those who were assigned the sex of male at birth) needed to have registered with the Selective Service System (SSS) to be eligible for federal student aid. The Department conducts a match with the SSS to verify this requirement. However, as described in Dear Colleague Letter GEN-21-04, the FAFSA Simplification Act eliminated the requirement, for Title IV eligibility purposes, that male students register with the Selective Service system before the age of 26. The Department began implementing this change starting with the 2021–2022 award year. For the 2022–2023 award year, though institutions will still see Comment Codes 30, 33, or 57 for Selective Service issues, failing to register with the Selective Service does not impact a student’s Title IV aid eligibility and must be ignored by the institution. In addition, for the 2022–2023 award year, the Department will include language in the Comment Codes stating that no further action is necessary on the part of the student or the institution. For more information about this student eligibility modification, please see Volume 1, Chapters 1 and 5.
Conviction for possessing or selling illegal drugs (23). Prior to the 2021–2022 award year, students convicted of a federal or state offense of selling or possessing illegal drugs that occurred during a period of enrollment while they were receiving federal student aid could lose access to Title IV funding but were still encouraged to complete and submit the FAFSA form because they may become eligible for federal aid, and even if they are not eligible, they may be eligible for state or institutional aid. As described in Dear Colleague Letter GEN-21-04, the FAFSA Simplification Act eliminated the prohibition on receiving Title IV aid for students with drug-related convictions. The Department began implementing this change starting with the 2021–2022 award year. For the 2022–2023 award year, though institutions will still see Comment Codes 53, 54, 56, or 58 for drug convictions, having a drug conviction does not impact a student’s Title IV aid eligibility and must be ignored by the institution. This means, regardless of how the student answers question #23 on the FAFSA form, the student’s Title IV eligibility will not be affected by having a drug conviction. For the 2022–2023 award year, the Department will include language in the Comment Codes stating that no further action is necessary on the part of the student or the institution. For more information about this student eligibility modification, please see Volume 1, Chapters 1 and 5.
Highest level of school completed by student’s parents (24 and 25). Some state agencies use this information to award grants and scholarships. Father and mother are defined here as the student’s birth or adoptive parents but not stepparents, guardians, or foster parents. This definition is unique to these questions—all others use the definition found under the “Who does and does not count as a parent on the FAFSA form” section described later in this chapter.
The IRS Data Retrieval Tool (DRT) allows students and parents who use the online FAFSA or the FAFSA feature of myStudentAid mobile app and who have already submitted their federal tax return to electronically retrieve their tax data from the IRS database. The ISIR will show that data was imported and if it was altered. All students and parents of dependent students who indicate on the application that they have already filed a federal tax return and who are otherwise eligible to use the DRT will be directed to do so.
The DRT will automatically answer the question about whether or not a tax filer filed a Schedule 1. The answer will be based on all current exceptions for filing a Schedule 1 and the transferred data for the Schedule 1 fields will be handled the same as other data transferred using the IRS DRT.
The actual values of the imported data are not viewable by students and parents (though they still appear on the ISIR). This is to enhance security and privacy and to prevent the misuse of sensitive data. Because aid officers and other officials will be able to see the transferred data, and in keeping with the expectation that they protect the confidentiality of data associated with the Title IV programs, they must not disclose income and tax information from the FAFSA form with the applicant, the applicant's spouse, or the applicant's parents unless they can authenticate their identity. For example, a student appearing in person and presenting an unexpired, valid, government-issued photo ID such as a driver’s license would be an effective way to authenticate his or her identity. See the September 5, 2017, announcement for more information.
As a result of IRS data being masked, students and parents will not be able to change it on the FAFSA; the financial aid office will need to make corrections. Also, rollovers will be handled differently. If the DRT transfers a non-zero amount into the untaxed pension or individual retirement account (IRA) distribution field, the applicant will be asked if any of it is due to a rollover. If he or she answers yes, he or she will then enter the rollover amount, which the CPS will subtract when calculating the EFC. And because of the data masking, students and parents who file a joint tax return will not be able to transfer their income earned from work but will have to manually enter those amounts. The income earned from work of single persons will, however, continue to transfer. See the August 7, 2017, announcement.
When the ISIR shows an IRS Request Flag value of 06 or 07, schools will need to contact the student or parent. A value of 06 indicates that after the DRT was used and the FAFSA was submitted, the student or parent changed an item on the FAFSA (e.g., the date of marriage) that would have made the person ineligible to use the DRT. The school must contact the student or parent to determine if all of the transferred data was correct or if it needs to be corrected. A value of 07 is an indication from the IRS that the student or parent used the DRT but also has filed an amended tax return for the relevant year (includes amended returns generated by IRS adjustments). Because the data that was transferred will be from the original return and not the amended one, the school must contact the student or parent and make any applicable corrections to FAFSA items, regardless of whether the application was selected for verification.
The ISIR will display IRS Data Field flags that indicate if any individual item was transferred from the IRS and if it was subsequently changed. A flag value of 1 will indicate that the item was transferred and was not changed. Such items do not need to be verified if the student is selected for verification. However, when there is a Request Flag value of 06 or 07, the above guidance must first be followed. The August 7 announcement has more information.
Also due to the IRS data masking, there are two comment codes that schools must respond to: code 400 for parents and 401 for students. When an ISIR indicates either of these codes, the school must check the FAFSA to see if any of the following conditions exist and make necessary corrections:
The student or parent is a tax filer and the AGI transferred from the IRS is zero, but the total income earned from work is greater than zero.
The total of the taxable income offsets (see the “taxable income offsets section later in this chapter) for the student or parents is greater than the AGI transferred from the IRS.
Any of the untaxed income items (see the “Untaxed income” section later in this chapter) for the student or parent is greater than or equal to the AGI transferred from the IRS.
The school may need to contact the student or parent for an explanation of one of the above conditions and to determine if any of the associated FAFSA items need to be corrected. Also, comment codes 400 and 401 can be considered resolved if (V1 or V5) verification is completed for the same ISIR. Again, see the August 7 announcement for more information.
High school completion status (26). The student indicates one of the following: high school diploma, General Educational Development (GED) certificate or state certificate, homeschooled, or none of the above. None of the above includes those who have the recognized equivalent of a high school diploma (as defined in 34 CFR 600.2) other than a GED certificate or a state certificate or who may qualify under the Ability-to-Benefit (ATB) alternatives; see Volume 1, Chapter 1, for an explanation of those options. Typically a foreign secondary education credential counts as a high school diploma; see FHD-Q1 on the program integrity website. A state certificate is what students receive after passing a “state authorized examination,” as referred to in 34 CFR 600.2. This includes tests comparable to the GED—i.e., those created and distributed by a test publisher—such as the High School Equivalency Test (HiSET) or the Test Assessing Secondary Completion (TASC), as well as those established by states, for example, the California High School Proficiency Exam (CHSPE). California considers a passing grade on the CHSPE to be equivalent to a diploma.
High school (27). This question asks for the name of the high school where the student received or will receive his or her diploma, as well as the city and state (or FC for foreign country) where it is located. On the FAFSA website, the student can choose the name from the dropdown list, or, if it is not on the list, the student will enter the school name, city, and state directly on the FAFSA form. See Volume 1, Chapter 1, regarding a school’s policy about checking the validity of a high school education.
Undergraduate student—One who is enrolled in a program that usually does not exceed four academic years or a longer program that leads to a first degree at the baccalaureate level. Students in programs longer than five years are considered undergraduates for only the first four years.
For the FSEOG, Pell, and TEACH Grant programs, a student is an undergraduate only if he or she has not earned, or completed the requirements for, a bachelor’s or professional degree. Students enrolled in a post baccalaureate program as described in 34 CFR 686.2(d) and 690.6 are still undergraduates for receiving TEACH and Pell grants but not FSEOG.
Students in dual degree programs that confer a bachelor’s degree and either a graduate or first professional degree are undergraduates for at least the first three years of the program. The school determines at what point after three years they cease to be undergraduates. [34 CFR 668.2(b)]
Graduate or professional student—One who (1) is not receiving aid as an undergraduate for the same period of enrollment; (2) is enrolled in a program above the bachelor’s degree level or one leading to a professional degree; and (3) has completed the equivalent of at least three years of full-time study, either before entrance into the program or as part of it.
Measured in credit hours, three years of full-time study must be at least three times the annual minimum for full-time study: 72 (24x3) semester or trimester hours or 108 (36x3) quarter hours. [34 CFR 668.2(b)]
Simplified needs test—The law provides a “simplified EFC” calculation for a student who meets certain income and tax filing requirements. If the applicant is eligible based on the information on the FAFSA form, the CPS will automatically exclude assets from the EFC calculation. However, some states and schools require this information for their own aid programs.
First bachelor’s degree (28). The student indicates whether he or she will have a first bachelor’s degree before beginning the 2022–2023 year because eligibility for Pell and Federal Supplemental Educational Opportunity grants (FSEOGs) is almost exclusively restricted to students who have not received a bachelor’s degree or completed the requirements for one. See “Pell Grants” in Chapter 6 of Volume 1 regarding degrees from unaccredited and foreign schools, which can count as bachelor’s degrees for Pell and FSEOG eligibility.
Student’s college grade level at the start of the school year (29). This is not based on the number of years the student has attended college but on work completed toward the degree/certificate. For instance, a full-time student might attain second-year grade level after one year of study, while a half-time student would take two years to reach that level.
Interest in work-study (31). The student indicates whether he or she is interested in receiving Federal Work-Study (FWS). This helps the school in packaging the student's award. If the student is unsure about wanting FWS, he or she should answer “don’t know” to still be considered for it; later he or she can decline any aid he or she does not want.
Occasionally an applicant will report no income for the base year. This can occur when the family has tax write-offs that produce a negative AGI or when the applicant neglected to report untaxed assistance. If the CPS does not select the student for verification, you may still choose to ask him or her for further information about his or her means of support during the base year. Also, you may use professional judgment (PJ) to adjust the income line items to reflect income the family receives that doesn’t appear on the tax return.
Any cash support for the student, other than support from a parent for a dependent student, counts as untaxed income and must be reported. In-kind help (see the “Income and benefits not to be included” section later in this chapter) from a friend or relative is not considered untaxed income and would not appear on the FAFSA form, however, you may use PJ to account for the value of that in-kind support in the COA. For example, you could adjust the room and board component of the COA for a student who lives with his or her aunt and eats meals with his or her family.
When a student and spouse or a dependent student’s parents file separate and different types of returns, what type should be indicated in Question 33 or 80? In such cases, IRS Form 1040 and foreign tax returns are considered comparable and take precedence over tax returns from the five inhabited U.S. territories: Puerto Rico, Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa. For example, if a student filed a foreign return and his or her spouse filed a Puerto Rican return, the student would answer foreign tax return for question 33. When comparable but different returns are filed, the IRS return takes precedence and is indicated. If the above student filed a 1040 return and his or her spouse filed a foreign return, the student would answer IRS 1040 to the question.
If one spouse files separately and the other does not file a return but has some income, how do you figure the AGI? Add the income earned from work (e.g., earnings from the W-2 form or any other earning statements) of the spouse who does not file a return to the AGI (as given on line 11 of Form 1040) of the spouse who does and enter the sum on the appropriate AGI line of the FAFSA.
Sometimes it is difficult to account for an outside financial award. If a student receives the award because of postsecondary enrollment, it counts as estimated financial assistance (EFA) if it is not considered wages for employment according to federal or state rules, or if it is considered wages and is based on need. Any amount that appears as income on the tax return will also be included on the appropriate line of item 43 or 91 on the 2022–2023 FAFSA form. If the award is considered wages for employment but is not based on need, then it is not EFA and it remains in income.
Step Two (questions 32–44) ask for the student’s and spouse’s income and assets [HEA Sec. 480(a), (b), (f), (g)]. Step Four (questions 58–92) collects similar information about parent income and assets, so the following discussion also applies to parents as well.
If the student or his or her parent was not married in 2020 but is married when the application is signed, the student also needs to provide income and asset information for the new spouse. If the student or their parent was married in 2020 but is separated, divorced, or widowed when the application is signed, the student or parent excludes the income and assets for that spouse even though the information may be on the 2020 tax forms.
The FAFSA form asks for income and taxes paid according to lines on the IRS tax forms for 2020, the “base year” for 2022–2023. Data from the completed tax year is used as a predictor of the family’s financial situation for the current year. In the rare instance that 2020 tax data is not available yet, best estimates can be used on the application. However, the student is asked to correct this information later when the tax return is filed.
Information from the income tax returns required by the tax codes of the Commonwealth of Puerto Rico, Guam, American Samoa, and the U.S. Virgin Islands is reported on the FAFSA form in the same manner as U.S. tax information, and copies of these forms can be used for verification in the same way as U.S. tax forms are. Amounts are already reported in U.S. dollars, and the school should look at tax return line items that are comparable to the IRS line items for verification.
When a student or parent has returns from both a foreign nation and the United States for the same tax year, they should use the data from the U.S. return when filling out the FAFSA form.
The FAFSA application also collects information for certain investments and other assets. Applicants only report the net worth of assets instead of reporting the value and debt. They should report asset amounts as of the date the application is signed.
Tax return filed and tax filing status (32–35, 79–82 for parents). These questions ask if a 2020 tax return was completed, which return was or will be filed, what the filing status was or will be, and whether the student or parents filed a Schedule 1 or did so only to claim one or more of the following: unemployment compensation, an Alaska Permanent Fund dividend, educator expenses, an IRA deduction, or the student loan interest deduction. The answers are used in part to identify if the student is eligible for the simplified needs test or the auto zero EFC and to find inconsistencies between the FAFSA form and the tax return.
Qualified tuition programs (QTPs, also known as section 529 plans because they are covered in section 529 of the IRS tax code) and Coverdell education savings accounts are grouped together in the law as qualified education benefits and have the same treatment: they are an asset of the owner (not the beneficiary because the owner can change the beneficiary at any time) except when the owner is a dependent student, in which case they are an asset of the parent. When the owner is some other person (including a noncustodial parent), distributions from these plans to the student count as untaxed income, as “money received.” When a parent owns a plan for a child and the parent is filing a FAFSA application as a student for himself or herself, the plan counts as an asset on the parent's FAFSA form.
States, their agencies, and some colleges sponsor qualified tuition programs. The IRS mentions two types of QTPs that are commonly called prepaid tuition plans and college savings plans. States may offer both types, but colleges may only sponsor prepaid tuition plans.
Prepaid tuition plans allow a person to buy tuition credits or certificates, which count as units of attendance. The number of units doesn’t change even though tuition will likely increase before the beneficiary gets to use the tuition credits. They are an asset of the plan owner, and their worth is the refund value of the credits or certificates.
College savings plans allow a benefactor to deposit money into an account that will be used for the beneficiary’s college expenses. The buyer does not pre-purchase tuition credits as with a prepaid tuition plan. Rather, this type of plan is essentially a savings account, and its value as an asset is the current balance of the account.
Coverdell education savings accounts, or ESAs, are another tax-advantaged savings vehicle for college education. They are treated the same as college savings plans: the current balance is an asset of the account owner.
As long as distributions from QTPs and ESAs do not exceed the qualified education expenses for which they are intended, they are tax-free, so they will not appear in the next year’s AGI. They should not be treated as untaxed income (except in the cases mentioned above) or as estimated financial assistance. For more information on these benefits, see the IRS’s Publication 970, Tax Benefits for Education.
In a take-back mortgage, the seller of a house finances a portion of its cost for the buyer, who repays this additional mortgage to the seller. The seller reports the interest part of any payments received from the buyer on Schedule B of IRS Form 1040. Therefore, if a student or his or her parents report such interest on the tax return, it likely indicates an asset that should be reported on the FAFSA form: the value of the take-back mortgage. There would be no debt reported against this asset. For example, if a dependent student’s parents sold their house for $200,000 and financed a take back mortgage of $40,000 to the buyer, the parents should report $40,000 as the net worth of the investment. The worth will decrease each year depending on how much of the principal the buyer paid back that year. This concept applies to other forms of seller financing of the sale of a home or other property.
Adjusted gross income (AGI), income tax, and income earned from work (36–39, 84–87 for parents). These items are reported for dependent students, their parents, and independent students. Each question gives the line reference to the 2020 IRS tax forms. Though students and parents may manually enter their IRS data in the FAFSA, they are strongly encouraged to transfer it with the DRT because that method is accurate, efficient, and useful for verification. Those who file a joint return and then are divorced, separated, or widowed before the application is signed won’t be able to simply copy the information from the tax forms or transfer data with the DRT. Instead, they must figure out how much of the income and taxes paid is attributable to them and not their spouse. For more on this calculation, see “Using a joint return to figure individual AGI and taxes paid” in Chapter 4. If the student, spouse, or parents were not required to file a tax return, the student should still report any income earned from work in questions 38–39 (student and spouse) and questions 86–87 (parents). The W-2 form and other records of work earnings should be used to determine these amounts. Do not include combat pay; because it is not counted as untaxed income and is removed from the AGI when it is taxable, it should not be included in the income earned from work. The FAFSA form instructs the applicant to add line 1 of the 1040 form to lines 3 and 6 of Schedule 1 and box 14 (code A) of Schedule K-1 (Form 1065) as an option for determining the income earned from work. But when the values of lines 3 or 6 or box 14 are negative, this will reduce the total and can wrongly affect the Social Security allowance. If values from lines 3 or 6 or box 14 are negative, treat them as zero when determining the income earned from work. Income earned from work is used to calculate allowances for the Social Security and Medicare tax (aka the Federal Insurance Contributions Act or FICA tax) and for the added costs incurred by two working spouses. For non-tax filers it will also be used in place of AGI and will cause the application to be rejected if it is above the tax filing threshold. For a fiscal year (rather than calendar year) tax return, information should be used from the return that includes the greater number of months in 2020. Example: Owen’s parents file a fiscal year tax return. Their fiscal year begins in September. The return they filed for the fiscal year starting in September 2019 includes eight months in 2020. The return they filed for the fiscal year starting in September 2020 only includes four months of 2020. Therefore, they should use the information from the return for the fiscal year that began in September 2019. If the student or parents filed a tax return using something other than an IRS form, such as a foreign or Puerto Rican tax form, the student should report on the FAFSA form the amounts (converted to U.S. dollars) from the lines of the form that correspond most closely to those on the common IRS forms. Non-tax filers, foreign countries, and international organizations In some countries the tax system does not operate as it does in the U.S., and people in those countries can earn a substantial amount of income and pay taxes without having to file a return. In such a case the person would correctly indicate that he or she did not file a tax return, and nothing will be reported for AGI or income tax paid. When that happens, he or she should report any net income that is earned from work in Question 38, 39, 86, or 87, as appropriate, of the FAFSA form and not as untaxed income in Question 44h or 92h, which is where untaxed foreign income not earned from work should be reported. This ensures that the income is properly included in the EFC calculation; for non-tax filers, income earned from work is used in place of the AGI and to determine eligibility for the simplified needs test (SNT) and automatic zero EFC. As noted earlier, when income earned from work exceeds the U.S. tax filing threshold and the person indicates he or she is not going to file a return, the FAFSA form will be rejected. The aid office must override the reject in FAA Access to CPS Online so that an EFC will be generated. What happens when one spouse files a return but the other spouse does not file a return but has foreign earned income as described above? Because one spouse filed a return, the FAFSA form should indicate in Question 33 or 80 what return was or will be filed, and the CPS will use the AGI for income and to determine eligibility for the SNT and auto-zero EFC. As above, the foreign income is still reported as income earned from work, but it is also added to the AGI of the tax filing spouse, as our guidance instructs under the “married filing separately” section described earlier in this chapter. In some instances, employees of certain international organizations, such as the United Nations, the International Monetary Fund, the World Bank, and others, might not be required to file a return, which results in situations similar to those described above. Follow the same guidance—a non-tax filer will report income from that employment as income earned from work only, while a person who is married to a tax filer will report it as income earned from work and add it to the AGI of the tax-filing spouse. Note that the guidance in this section does not pertain to the Foreign Earned Income Exclusion, which is reported on the U.S. tax return and is excluded from the EFC calculation by the HEA.
Assets (40–42, 88–90 for parents). An asset is property that the family owns and has an exchange value. The FAFSA form collects current data (as of the day of signing the FAFSA form) about cash, savings and checking accounts, investments, businesses, and investment farms. Most assets are investments such as college savings plans, Coverdell education savings accounts, real estate, installment and land sale contracts (including mortgages held), trust funds, mutual funds, money market funds, Uniform Gifts and Uniform Transfers to Minors (UGMA and UTMA) accounts, certificates of deposit, stocks, stock options, bonds, commodities, and precious metals. If the asset isn’t a business or investment farm, it is reported as an investment. The FAFSA form asks for the net worth of investments, which is their total current market value minus their associated debts. If their net worth is negative, zero should be reported. Similarly, for a business or investment farm, the current net worth (the current market value minus the debt owed on it) is reported for land, buildings, machinery, equipment, livestock, and inventories. Business or farm debt means only those debts for which the business or farm was used as collateral. Rental properties are an asset. A unit within a family home that has its own entrance, kitchen, and bath (therefore a rented bedroom would not count) and that is rented to someone other than a family member counts as an asset. To calculate its net value, multiply the net value of the entire structure by the fraction the rented space represents. Similarly, if a family owned a 10-unit apartment building and lived in one of the apartments, 9/10 or 90% of the net value of the building would be an asset. At times a student or parent will claim rental property as a business. Generally, it must be reported as real estate instead. A rental property would have to be part of a formally recognized business to be reported as such, and it usually would provide additional services like regular cleaning, linen, or maid service. Virtual currency such as Bitcoin is considered an asset. If a student, student’s spouse, or parent (as applicable) holds Bitcoin, they must report its value in U.S. dollars (as of the day the FAFSA form is completed) as an asset on the FAFSA form. If the student or parent sells Bitcoin and has a capital gain from the sale, the taxable portion will end up in the AGI for the year it is reported on the tax return, and the AGI will then be included on the associated FAFSA form. For more information on how the IRS treats virtual currencies, please see the IRS virtual currency webpage. UGMA and UTMA accounts: The Uniform Gifts and Uniform Transfers to Minors Acts (UGMA and UTMA) allow the establishment of an account for gifts of cash and financial assets for a minor without the expense of creating a trust. Because the minor is the owner of the account, it counts as his or her asset on the FAFSA form, not the asset of the custodian, who is often the parent. Excluded assets—the following are NOT reported on the FAFSA Form: