This is the first post in a three-part series on the FAFSA's income reporting options.
Many states and universities impose early deadlines for completing the Free Application for Federal Student Aid (FAFSA). Most of these so-called priority deadlines fall long before the April 15th IRS deadline for filing your federal tax return. Many families are simply unable to complete their federal tax returns prior to the deadlines set by their state and university grant programs. So just what is a family to do?
If the institution you plan to attend or the state in which you live has an early deadline, do not miss that deadline and forfeit those potential grant and scholarship dollars. Never leave free funding on the table.
The FAFSA allows both students and parents to enter estimated income information when completing either the online FAFSA or the paper form. The illustration at right shows this "will file" option for parents on the paper FAFSA.
On your FAFSA, just indicate that you “will file” a tax return. After the FAFSA has been processed, you will then have the opportunity to return to the online FAFSA to update your income information using the amounts shown on your completed 2012 federal tax return. Or, you can take advantage of the FAFSA's IRS Data Retrieval system to automatically transfer tax information from your return to your child's FAFSA or to your FAFSA, if you happen to be the student.
To utilize the “will file” option, you and your family will need to create estimates based upon your last pay stubs and final bank account statements for the 2012 tax year. Also remember to include all sources of income – including any interest and dividends, business or rental income, or child support received. Review your most recent completed federal tax return (for example, your 2011 return) to help ensure that you have included all income sources.
If possible, rough out a federal tax return form to assist with calculations, and it's always a good idea to line up your responses to the questions on the FAFSA form. To get started, see my earlier post,“Completing the FAFSA - Where Do I Start?” and CollegeUp.org's guide to the official and financial documents you'll need: “Get Your Stuff Together". As shown in the screenshot below, the online FAFSA offers a series of prompts to help you estimate your 2012 income.
FYI, your chosen school can put a financial aid package together based on a FAFSA that uses estimated tax information. However, please remember that adjustments may be made to your financial aid award package once your actual tax return information has been submitted to the FAFSA processor, so try to be as accurate as you can if you are submitting your FAFSA before you and your family file your tax returns.
Very Important Tip: Don’t forget to go back to your FAFSA upon completion of your federal tax return and update your filing status from "will file" to “filed” and provide the correct income information. Failure to do so may result in your application being selected for a process called "verification", in which case, you will need to provide documentation to the financial aid office to support of the figures you provided on the FAFSA. The verification process could delay the creation or finalization of a financial aid package by the school.
Your FAFSA is the first step in applying for federal financial aid, including grants, federal loans, and work-study, and completing your FAFSA by your state or school's priority deadline is the most critical step in maximizing financial aid dollars. And, yes, you can file your FAFSA before you file your taxes. Just make sure to get those taxes done as soon as possible.
Sue Allmon is Financial Aid Administrator at Western Governors University.
Other posts in this series: