Virtually all student financial aid in the US today, both government and private grants and loans, is awarded on the basis of information supplied by students and their parents on the Free Application for Federal Student Aid, or FAFSA. This is an annual report of a student’s household financial situation to the Department of Education, which shares it with the colleges and universities the student specifies. Regardless of your family situation, if you want to be considered for financial aid, you should file a FAFSA.
Prior to the 1992 establishment of the FAFSA, the process of applying for financial aid was costly, confusing and often chaotic. Students generally had to complete and file separate applications for every scholarship and loan they wanted to be considered for, frequently had to include a filing fee with each one, and often missed out on aid they were qualified for because they didn’t know about it. FAFSA was designed to impose fairness and uniformity on this process.
What Counts as Separation
For the purposes of the FAFSA, separation means that one of the parents is absent from the household for an indefinite period of time. It can be informal – a legal separation agreement is not required. Nevertheless, it must be real – the absent parent must live outside the household, not in his own room or on a separate floor. Temporary absences for education, work, or military service don’t count as a separation. For FAFSA, the custodial parent is the one with whom you lived the majority of the 12 months ending on the FAFSA application date.
What Income Is Reported
The FAFSA is designed to determine your household’s resources, income, and obligations; thus, the income of the absent parent is not reported. Instead, you report only the income attributable to the custodial parent. In community property states, the adjusted gross income (AGI) is halved; in other states, you can generally determine the custodial parent’s income from W-2 and 1099 forms. Any alimony, child support, or expenses paid by the absent parent that would normally be paid by the custodial parent, like rent or utilities, should be counted as untaxed income to the custodial parent.
The Connection between FAFSA and the IRS
In cases where both parents are present, when you complete and file the FAFSA online, you can use the IRS Data Retrieval Tool to access the relevant income tax filings (Form 1040) and transfer the appropriate data to the FAFSA. Because you’re only reporting the custodial parent’s income, you can’t use this tool, which is why you must work with your copy of Form 1040, as well as any attachments, and forms W2 and 1099 to get the information. Unfortunately, if you don’t use the IRS tool, there’s a greater chance your application will be selected for verification.
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