What Income is Listed on the FAFSA when Separated Parents File a Joint Tax Return?

What Income is Listed on the FAFSA when Separated Parents File a Joint Tax Return?

I am praying that you may be able to advise me on the FAFSA

application. I am a senior in high school and will file the FAFSA in

October. I live with my mom. My dad moved out almost 2 years ago. As part

of my parents’ agreement, my dad is paying for our rent and

utilities. My mom and dad are still married, and not legally separated. They

plan to continue to file jointly for tax purposes. My mom is a

dislocated homemaker. I know that for FAFSA purposes, I do not have to

put down my dad’s info since he is not the custodial parent. But,

since they file jointly, do I still go ahead and list his info?

Since my dad filed jointly (he is the only one that works, and his

income is about $44,000, and we are a family of 5, not including

my dad, then we would be 6) doesn’t that mean that my mom filed too

and that I need to report my dad’s income as well?

— Blanca

A student’s parents do not need to have a legal separation or divorce

decree to be considered separated on the Free Application for Federal

Student Aid (FAFSA). An informal separation can count as a

separation for federal student aid purposes. In an informal

separation, one parent has left the household indefinitely. Living on

separate floors of the same house is not sufficient. The parents

cannot cohabit in an informal separation. Temporary absences for work,

education or military service also do not count.

IRS rules are different, so it is possible for a couple with an

informal separation to file federal income tax returns as married and

the FAFSA as separated. (Parents who are divorced or who have a legal

separation cannot file federal income tax returns as married. However,

if the divorce or legal separation occurred after the end of the tax

year but before filing the FAFSA, it is possible for there to be a

joint return in the prior tax year.)

If the parents are separated, only the parent with whom the student

lived the most during the 12 months ending on the FAFSA application

date is responsible for completing the FAFSA. The other parent’s

income and assets are not reported on the FAFSA. The other parent is

also not counted in household size.

If the student’s parents are separated but filed a joint federal

income tax return, the custodial parent will have to figure out their

share of the income and taxes paid on the joint return.

If the parents live in a community property state, the income is split

evenly. Otherwise the parent’s income should be based on their IRS W-2

and 1099 forms, plus any income that can be extracted from the joint

return. Income and dividends from joint accounts and investments

should be split evenly. Taxes paid can be calculated using one of two

methods. The preferred method is to use the IRS Tax Table or Tax Rate

Schedule to calculate the amount of taxes that would have been paid

had the parent filed a separate return, taking into account the

deductions and exemptions the parent could have claimed. The other

approach is to split the joint taxes paid in proportion to the

parent’s share of the joint AGI.

If the custodial parent receives any support from the non-custodial

parent, this should be reported as untaxed income on the

FAFSA. Likewise for any support received by the student from the

non-custodial parent. For example, if the non-custodial parent is

paying bills that the custodial parent would otherwise have to pay,

such as rent, utilities, insurance and food, that counts as untaxed

income to the custodial parent.

Parents who are separated but file a joint federal income tax return

will not be able to use the IRS Data Retrieval Tool to transfer

information from the federal income tax return to the FAFSA. Such a

FAFSA is more likely to be selected for verification.

Source: Fastweb

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