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FAFSA - Step 2
We
should now be ready to begin Step 2 of the FAFSA, which collects information
about your, and your parents income and assets to determine your financial
need.
All students (dependent and independent) must provide their financial
information for these questions. The EFC calculation, determined by a
formula specified by law, uses a family's income, household size, and
certain expenses to determine whether the family has discretionary income.
If the family has discretionary income, a portion, and only a portion, of
that income is included in the EFC as available for a student's educational
costs.
It is best if you fill out your 2003 income tax return(s) before filling out
this application. However, if you have not completed your income tax
return(s), you should calculate your Adjusted Gross Income (AGI) and taxes
paid using the applicable IRS instructions. You can get the instructions and
the appropriate tax form at a public library or download them from the IRS
website.
When your application is compared with the tax return(s) you (and your
spouse) actually file, the financial information must agree. If there are
differences, you will need to correct the information on the web or send it
back to the FAFSA processor. This could mean a delay in getting student
financial aid.
Even if you (and your spouse) are not required to file a 2003 income tax
return, you will need to calculate your earnings for the year. You can use
the W-2 Forms sent by your employers and other records to answer the
questions in this section.
If an answer is zero or a question does not apply to you, enter 0 (zero).
For the upcoming 2004 through 2005 FAFSA, which will be released in January
2004, the "base year" for completing income tax questions is 2003.
If you are married at the time you submit the FAFSA, even if you were not
married in 2003, both your and your spouse's income, assets, and exemptions
must be reported. If you and your spouse filed (or will file) separate tax
returns for 2003, be sure to include information from both returns.
If you are single, divorced, separated, or widowed, you should answer the
questions for yourself only and ignore the references on the FAFSA to
"spouse."
If you are divorced, separated, or widowed but filed, or will file, a joint
tax return for 2003, you should give only your portion of the exemptions,
income, and taxes paid for the income and asset questions.
Let's begin with question 36 - Filing a return.
Indicate whether you have already completed, are going to complete, or will
not file a tax return for 2003.
Question 37 relates to the type of return you have filed or will file.
Question 38 seeks to determine if you were eligible to file a 1040A or
1040EZ tax form. If you (and your spouse) are eligible to file a 1040A or
1040EZ for 2003, indicate your eligibility to file one of these forms, even
if you file a 2003 IRS Form 1040. For instance, tax preparers often file a
Form 1040 or an electronic 1040 on behalf of a tax filer, even though that
person's income and tax filing circumstances would allow him or her to file
a 1040A or 1040EZ.
In general, you are eligible to file a 1040EZ or 1040A if you make less than
$50,000, do not itemize deductions, do not receive income from your own
business or farm, and do not receive alimony.
Question 39 asks for your Adjusted Gross Income or "AGI"
Provide your (and your spouse's) AGI for 2003. AGI is generally found on IRS
Form 1040EZ - line 4; Telefile - line I, 1040 - line 35; and 1040A - line
21. If you have not completed a 2003 tax form, you should calculate your AGI
using the instructions for IRS Form 1040.
Question 40 relates to income tax.
Enter the amount of 2003 income tax you (and your spouse) paid. This is
generally found on line 10 from the Form 1040EZ; Telefile - line K(2); 1040
- line 55; and 1040A - line 36. Do not copy the amount of federal income tax
withheld from a W-2 Form. Do not include any FICA, self-employment, or other
taxes. If you did not pay any income tax for 2003, enter zero (0).
Question 41 asks about your exemptions.
Enter your, and your spouse's, exemptions for 2003. Exemptions are on IRS
Form 1040 - line 6d or 1040A - line 6d. If you answered "Yes" on 1040EZ -
line 5, use EZ worksheet line f to determine the number of exemptions ($
3,000 equals one exemption). If you answered "No" on line 5, you should
enter "01" if single or "02" if married. On the Telefile, use line J(2) to
determine the number of exemptions.
Question 42 relates to Student's income earned.
When the Department's processor calculates your EFC, certain allowances are
deducted from your, and your spouse's, income for necessary expenses, such
as taxes and basic living costs. The income earned from work will be used in
the EFC calculation as an income factor when no tax form is filed.
Question 43 asks for information about your Spouse's income earned.
Use the instructions from Question 42, "Student's Income Earned" as the
guide to answer this question for your spouse's income.
If you filed, or will file, a tax return, you should include your share only
from IRS form 1040 - lines 7 + 12 + 18; 1040A - line 7; 1040EZ - line 1;
Telefile - use your W-2. Even if you filed a joint return, you must report
your and your spouse's earnings separately.
If you did not file a tax return, you should report your earnings from work
in 2003. You can find this information on your W-2 Form(s).
Let's move on to the Student (and Spouse) Worksheets.
On the worksheets, you should complete the left-hand, or yellow, side on
page 8 of the paper FAFSA.
Question 44 asks for the results from Worksheet A.
Earned income credit. Enter the earned income credit from IRS Form 1040EZ -
line 8; Telefile - line L;1040 - line 64; or1040A - line 41.
The second question on worksheet A asks for information about any additional
child tax credits. Report the amount from IRS Form 1040 - line 66 or 1040A -
line 42. You cannot use the 1040EZ or Telefile if you are claiming a child
tax credit.
Next question on worksheet A relates to welfare benefits, including
Temporary Assistance for Needy Families or TANF. Enter the total amount of
welfare benefits you (and your spouse) received, including TANF, in 2003.
Report the amount you received for the year - not monthly amounts. Do not
include food stamps or subsidized housing.
Next is Untaxed Social Security benefits. If Social Security benefits were
paid to your parents on your behalf, those benefits are reported as your
parents' income, not your income.
If you, as head of household, receive benefits on behalf of persons included
in your household size these benefits must be reported as your income.
However, if a member of your household, such as an uncle or grandmother,
receives benefits in his or her own name, you do not report those benefits
as your income.
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 that must be reported and are
taxed as any other income.
Let's move into Questions 47-51.
Question 47 relates to Asset Information.
An asset is defined as property that has an exchange value. The purpose of
collecting asset information is to determine whether your family's assets
are substantial enough to support a contribution toward your cost of
attendance or COA. Only the net asset value is counted in the need analysis.
To determine the net value of any asset, you first must determine the market
value of the asset and reduce the value by the amount of debt against that
asset. The result is the net value of the asset.
Ownership of an asset may be divided or contested in several situations:
If you (or your spouse) own an asset with others and therefore only own a
portion or percentage of the asset, you (or your spouse) should report the
net asset value that represents only your share of the asset owned. You
would determine the current market value of the asset, reduce the value by
any outstanding debt, and then multiply the net asset value by your
ownership percentage. This result is then reported on the FAFSA.
"Contested ownership" is reported when an asset should not be reported if
its ownership is being legally contested. For instance, if you and your
spouse are separated and you may not sell or borrow against jointly owned
property that is being contested, the FAFSA information you report would not
list any value for the property or any debts against it. If ownership of the
asset is resolved after the initial application is filed, you may not update
this information. However, if ownership of the property is not being
contested, you would report the property as an asset.
A "Lien Against Asset" is reported if there is a lien or imminent
foreclosure against an asset, the asset would still be reported on the FAFSA
until the party holding the lien or making the foreclosure completes legal
action to take possession of the asset.
The following are examples of assets that are not reported:
Principal place of residence/family farm. Your principal place of residence
is not reported as an asset. Neither is your family farm if the farm is your
principal place of residence and your family claimed on Schedule F of the
tax return that it "materially participated in the farm's operation."
Do not report personal possessions such as a car, a stereo, clothes, or
furniture as assets. By the same token, personal debts such as credit card
debt cannot be reported.
Do not report Investments as assets.
You should not report Rental properties as assets.
"Take-back" mortgages should also not be reported as assets.
Do not report Trust funds and tuition prepayment plans as assets. If trust
funds are in your (or your spouse's) name, they should be reported as your
(or your spouse's) asset on the application.
Question 47 relates to Net worth of investments. Investments include real
estate such as rental property, land, and second or summer homes. Again, do
not include your primary place of residence, or your home.
The money in an Education IRA is an asset for the student beneficiary
because an Education IRA is not a retirement account. It is essentially a
savings account to be used for the student's educational expenses.
Therefore, you must report the amount in your Educational IRA with your
investments.
You should use this equation to determine Net Worth of Investments.
Investment Value - Investment Debt = Net Worth of Investments
If you (and your spouse) own real estate or investments other than your
principal residence, their value equals the amount they are worth today.
Investment debt equals how much you (and/or your spouse) owe on real estate
and investments other than your principal residence. Investment debt means
only those debts that are related to the investments.
Subtract the amount of debt on these assets from their value. Indicate this
amount in for net worth of investments.
Question 48 determines Net worth of business and/or investment farm.
Business or farm value includes the current market value of land, buildings,
machinery, equipment, inventory, etc. Once again, do not include your
primary home.
Use this similar equation to determine your Net Worth of Business/Farm.
Business/Farm Value - Business/Farm Debt = Net Worth of Business/Farm
For business or investment farm value, first figure out how much the
business or farm is worth today.
Business or investment farm debts are what you (and/or your spouse) owe on
the business or farm. Include only debts for which the business or farm was
used as collateral.
Subtract the amount of debt from the value. Indicate this amount for net
worth of business and/or investment farm.
To report current market value for a business, you must use the amount for
which the business could sell as of the date of the application. Also, if
you are not the sole owner of the business, you should report only your
share of its value and debt.
Question 49 asks for your Total current cash, savings, and checking account
balance. Include the balance of checking or savings accounts as of the date
the FAFSA is signed.
Do not include student financial aid.
Question 50 refers to the Number of months veterans education benefits were
received. Enter the number of months from July 1, 2003 to June 30, 2004 you
expect to receive veterans education benefits. If you do not receive
veterans education benefits, enter zero (0).
And finally, question 51 determines the Amount of veterans education
benefits. Veterans education benefits information is not used in the EFC
calculation; your school will use it when putting together your aid package.
If you receive veterans' education benefits, you must report the amount of
monthly benefits that you expect to receive during the school year (from
July 1, 2003 through June 30, 2004). Such benefits include, but are not
limited to the
Montgomery GI Bill - Active Duty (MGIB)
Reserve Officer Training Corps (ROTC) scholarship
Veterans Educational Assistance Program (VEAP)
Dependents Educational Assistance Program (DEA)
Do not include your spouse's veteran's education benefits.
This concludes section 2 of the FAFSA. You should now be ready to move into
Section 3.
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