It’s time to fill out the Free Application for Federal Student Aid (FAFSA). It’s about as much fun as having your teeth cleaned. For your additional amusement, filing the 2020-2021 FAFSA will be a bit different because you’ll use information from your 2018 tax return, which is the first year the Tax Cuts and Jobs Act took effect.
What does this mean for FAFSA filers?
Potential pluses and minuses
With the adjustment of the tax brackets, some people pay less in taxes. “This could mean you’re eligible for less financial aid. Lower taxes mean you have more money in your pocket, which the FAFSA takes to mean you are more able to pay college costs,” says Leslie Tayne, a debt resolution attorney with the Tayne Law Group in Melville.
Additionally, the standard deduction increased significantly, but the personal exemption was reduced to zero. “In most cases, this evens out, but it could mean some families are actually paying higher taxes and will be eligible for more financial aid.”
The new question
The FAFSA now asks if you filed a Schedule 1. This is a tax form created by Congress to report certain adjustments to income and additional taxes paid, and 2018 was the first year this form was required for some taxpayers.
Your answer affects the expected family contribution formula used to calculate your aid. If you answer yes, you’re asked about assets and bank accounts.
If your family filled out a Schedule 1 because of additional income or an adjustment of income such as alimony, rental or business income, you should answer yes. Carefully follow the regulations and instructions for reporting this information.
When should you answer no? The instructions for this question say to answer no if you (and, if married, your spouse) did not file a Schedule 1, or if you (and, if married, your spouse), did or will file a Schedule 1 only to report one of the following items: capital gain, unemployment compensation, an Alaska Permanent Fund dividend, educator expenses, IRA deduction, student loan interest deduction.
“Answering the question incorrectly can result in missed aid,” said Amira Yayahoui, founder of Mos.com, an education technology platform where students can apply for state and federal financial aid.