Part: 3 - - Filling Out the Free Application for Federal Student Aid
SectionTitle: Section G -- "1993 Income Earnings, and Benefits"
PURPOSE: THE EFC CALCULATION COMPARES THE
FAMILY'S INCOME FROM THIS SECTION TO THE FAMILY'S
HOUSEHOLD SIZE AND OTHER EXPENSES, TO DETERMINE
IF THE FAMILY HAS ANY DISCRETIONARY INCOME. IF
THE FAMILY DOES HAVE DISCRETIONARY INCOME, ONLY
A PORTION OF THAT INCOME IS EXPECTED TO BE
CONTRIBUTED TOWARDS THE STUDENT'S EDUCATIONAL
COSTS. NOTE THAT THE "INCOME EARNED FROM WORK"
ITEMS ARE USED TO DETERMINE IF THE STUDENT IS
ENTITLED TO AN EMPLOYMENT EXPENSE OFFSET.
Section G collects information on the BASE YEAR INCOME of the
parents (if the student is dependent) and of the student and spouse,
as well as income tax paid, tax filing status, and the number of
exemptions claimed. The base year for applicants in 1994-95 is the
1993 tax year. Estimated base year income for the tax year may be
used if the family has not yet filed its 1993 tax return. However, if it
turns out that the estimated information is incorrect, the student
must make corrections on the SAR when the tax return is filed.
Puerto Rican Tax Return
Puerto Rican Form 481 or the short form (Forma Corta), is
considered to be an IRS Form 1040A or 1040EZ for the purpose of
completing the FAFSA. Puerto Rican Form 482 or the long form
(Forma Larga) is considered to be an IRS Form 1040 for the purpose
of completing the FAFSA.
Income earned in a foreign country is treated in the same way as
income earned in the United States, if taxes were paid to the central
government of that country. The student should report the value of
the foreign income in U.S. dollars (using the exchange rate at the
time of application), on the "adjusted gross income " line item and
the "income earned from work" line item.
The student should also include the value of taxes paid to the foreign
government on the "U.S. income tax paid" line item. (If the income
earned in the foreign country was not taxed by that country, it
should be reported as untaxed income.)
FORM 2555. In many cases, if the student or parent files a return
with the Internal Revenue Service for a year in which foreign
income was earned, a portion of the foreign income can be
excluded, on a Form 2555, for tax purposes. The figure reported
on Line 43 of the Form 2555 should be reported as "untaxed
income" on the FAFSA. The final total for the Form 2555 must
not be reported as untaxed income, because it contains other
Income earned from work
The line items for income earned from work for the father and
mother are used to calculate the employment expense offset. They
are only used in the income assessment if no Adjusted Gross Income
was reported on the application.
Untaxed income and benefits
Under "untaxed income and benefits," separate line items are
provided for Social Security benefits, AFDC payments, and child
support because these are the most common forms of untaxed
income and benefits. Note that if Social Security benefits are paid to
the parents on behalf of the student (because the student was under
18 years old at the time), those benefits are reported as the parent's
income, not the student's income. If the Social Security check was
made payable to the student, it would be reported as the student's
Students must be sure that Line 67 or 78, the "other untaxed income
and benefits," does not include any of the Social Security or AFDC
benefits already reported in previous line items.
The line items for "other untaxed income and benefits" are used to
report any benefits received by the student and parents that are not
reported elsewhere on the form. Any cash support received from a
family member or third party should also be reported as untaxed
income. In some cases, the value of housing or payments on behalf
of the student must be reported.
INCOME EXCLUSIONS ON IRS FORM. Two examples are the
untaxed portion of capital gains, and the interest and dividend
exclusion. Both must be reported on the application for
financial aid purposes, because they represent additional
financial resources available to the family, even though they are
not taxed as a matter of public policy.
EARNED INCOME CREDIT. The "Payments" section on the
IRS forms includes an earned income credit, which is a potential
source of income that must be reported on the application.
IRA/KEOGH, PENSIONS AND INSURANCE SETTLEMENTS.
If the family is eligible to exclude its payments to an IRA/Keogh
from taxation, those payments are reported as untaxed income.
If payments to other pension funds are not excluded for tax
purposes, they would already be included in the "adjusted gross
income" figure. A student should report money paid into tax-
sheltered or deferred annuities (paid directly or withheld from
earnings). In addition, any payments from a pension, annuity,
or insurance settlement must be reported on the application,
either as taxable income, or untaxed income, as appropriate.
The full amount of the distribution must be reported, whether it
was a lump-sum or an annual distribution. The only exception
to reporting pension distributions as income is when the pension
distribution is "rolled over" to another retirement plan in the
same tax year.
BENEFITS RECEIVED ON BEHALF OF DEPENDENTS. Any
benefits received by the head of household on behalf of persons
included in household size (Section F) must be reported as
income to the head of the household. However, if members of
the household, such as an aunt or grandmother, receive benefits
in their own names, those benefits are not reported as income of
the head of household. Remember that siblings of the student
and "other persons" may not be included in household size if
they receive in their own name more than half of their support
through such benefits.
UNDERPAYMENTS AND OVERPAYMENTS OF BENEFITS.
The actual amount of benefits received for the year in question
must be reported, even if that amount represents an
underpayment or an overpayment that may be compensated for
in the next year. This parallels the IRS treatment of
overpayments of taxable income (such as salary) which must be
reported and is taxed as any other income. However, if the
underpayment or overpayment was adjusted in the same year,
only the net amount received during that year would be reported.
CASH SUPPORT TO STUDENT. Any cash support that the
student receives from a friend or a relative (other than the
parent, if the student is dependent) must be reported as untaxed
income. Cash support includes payments made on behalf of the
student. For instance, if the student's uncle pays the student's
rent or utility bill, the student must report those payments as
untaxed income on the application.
HOUSING ALLOWANCES. Housing allowances provided to the
parents or student must be reported. This applies to
compensation that some people, particularly clergy and military
personnel, receive for their jobs. If the parent or student
receives money to pay for rent, he or she should list the amount
of money received. If the parent receives use of a house or
apartment, he or she should report the amount that he or she
would pay to rent a comparable house or apartment (market
value). Similarly, if the student received free room and board in
the base year for a job that was not awarded as student financial
aid, the student must report the value of the room and board as
Excluded forms of income
There are some cases in which income and benefits received by the
student or parent should not be reported on the application:
STUDENT FINANCIAL ASSISTANCE. With the exception of
veterans educational and compensatory benefits, student
financial assistance is not reported on the application, because
such assistance does not affect the Federal Pell Grant, and is
already taken into account as a resource for the campus-based
programs and as estimated financial assistance for Stafford.
(NOTE: Awards received by participants in the President's pilot
national service program in the summer of 1993 should not be
reported on the application.)
WORK-STUDY EARNINGS. Ordinarily, earnings from work
are reported as income on the financial aid application.
However, if those earnings are part of a financial aid package
and are intended as financial assistance to the student, they are
not reported as income.
SUBSIDIZED HOUSING. Rent subsidies paid by governmental
and charitable organizations for low-income housing are not
reported as untaxed income.
FOOD STAMPS. Food stamps are not counted as income, but
are regarded as "in-kind" assistance. Similarly, benefits from
the following programs are not counted as untaxed income:
Women, Infants, and Children Program, Food Distribution
Program, Commodity Supplemental Food Program, National
School Lunch and School Breakfast Programs, Summer Food
Service Program, and Special Milk Program for Children.
CHILD CARE BENEFITS. The worth of day care services
provided by the Child Care Program and the Social Services
Block Grant Programs should not be reported because they are a
form of in-kind income. (NOTE: The Department of Health
and Human Services provides reimbursement for child care
expenses incurred by welfare recipients through AFDC. These
benefits are reported on the application because the individual
bills the State for the amount of child care costs incurred while
on welfare, and is reimbursed on that basis.)
PER CAPITA PAYMENTS TO NATIVE AMERICANS. Per
capita payments should not be reported unless they exceed
$2,000. These are payments made by the tribal government.
Thus, if an individual payment was $1,500, it would not be
reported on an application. However, if the payment was
$2,500, only the amount that exceeds $2,000 would be reported
as untaxed income ($500).
HEATING/FUEL ASSISTANCE. Exclude from consideration as
income or resources any payments or allowances under the Low
Income Home Energy Assistance Act. (NOTE: Payments under
the Low Income Home Energy Assistance [LIHEA] Act are
made through state programs that may have different names.)
6 Questions About Reporting Income
THESE ARE SOME OF THE MOST COMMON QUESTIONS
ABOUT REPORTING INCOME THAT ARE RECEIVED AT THE
DEPARTMENTS TOLL-FREE FEDERAL STUDENT AID
"Why do you ask for income information from the year before the
student goes to school?"
A: Studies have consistently shown that verifiable income tax
information from the base year (1993 for the 1994-95 award year) is
more accurate than projected (1994) information when estimating
how much the family will be able to contribute during the coming
"What should the student do if the family has special circumstances
that arent mentioned in the application?"
A: Talk to the financial aid administrator. If the familys
circumstances have changed from the base year (1993) due to loss of
employment, loss of benefits, or death or divorce, the financial aid
administrator may decide to adjust data elements used to calculate
the students EFC, which may increase the students eligibility for
"If the student lives with an aunt or grandparent, should that
relatives income be reported instead of parental information?"
A: Only if the relative is the students legal guardian, as defined on
the application. The student can only be considered to be dependent
on his or her parent(s) or guardian, and only parental/guardian
information may be reported on the application. Any cash support
given by relatives must be reported as untaxed income, but in-kind
support (such as food and housing) from relatives is not reported.
"What if the student lives with a girlfriend or boyfriend who pays
A: The student should not report any information for a friend or
roommate unless they are actually married or are considered to have
a common-law marriage under state law. The student must report
any cash support given by the friend as untaxed income, but in-kind
support (such as food) from the friend is not reported. Note that the
student would have to report the rent paid by the roommate as
income if the students name was on the lease, and the roommate
was paying the rent on the students behalf.
"When is work considered student aid?"
A: Generally, grants and scholarships are not considered to be taxed
or untaxed income, and are not reported on the application. (The
only exception is veterans educational benefits.) If the student has
an ROTC scholarship, a Betty Crocker Scholarship, or any kind of
grant or scholarship, that scholarship or grant will be considered as
an available resource by the financial aid office when PACKAGING
aid, but will not be reported as income on the application.
In some cases, the student may have a job that was awarded as
financial aid. The income from that job should not be reported on
the application. If the students adjusted gross income (AGI) and
taxes paid include income earned through a student financial aid
program, that income must be subtracted from the AGI and taxes
paid before they are reported on the application.
For income to be excluded from the financial aid application, the job
has to have been awarded to the student based on financial need.
Thus, if the financial aid office gave the student a Stay-In-School job
or a job as a Resident Advisor as a part of the students aid package,
the income from that job would not be reported on the application.
On the other hand, if the student got a job that was not awarded as
part of the financial aid package, the income from that job would be
reported on the application.
"Whats the difference between cash support and in-kind support?"
A: Cash support is support given either in the form of money, or
money that is paid on behalf of the student. Cash support must be
reported as untaxed income on the application. Thus, if a friend or
relative gives the student grocery money, it must be reported as
untaxed income. If the friend or relative pays the electric bill for the
student, or part of the students rent, those payments must also be
In-kind support usually takes the form of free food or housing that is
provided to the family, and is usually not reported on the
application. So if the student is living rent-free with a friend or
relative, the rental value is not reported as untaxed income unless
the students name is on the lease.
However, the application does require a student to report the value
of housing that is provided to the family as compensation for a job.
The most common example is free housing or a housing allowance
provided to military personnel or clergy.