Time to Update your FAFSA!
Now that your taxes are done (if not, they should be!), you should log back into the FAFSA web site (www.fafsa.ed.gov) to update the data to reflect actual numbers from your Federal tax return. Have your tax return AND your W-2 forms in front of you and take the time to transpose the correct line items to the FAFSA form so that your EFC is accurately calculated. This may have an impact on your financial aid eligibility. Remember, the EFC from the FAFSA is subtracted from the Cost of Attendance at the colleges listed on the FAFSA. The difference, if any, is your eligibility for federal student aid.
Did you make a mistake like this?
One point of confusion for this update regards the “taxes paid” requested by the FAFSA. If you are self-employed with a Schedule C business, you will need to be aware of the difference between line 55 and line 56 on the 2010 IRS form 1040. As a self-employed small business owner, it may make sense to put your total tax liability from line 56 of Form 1040 onto the “taxes paid” line, but that would be incorrect. Line 56 (for the self-employed) includes half of the self employment tax in addition to your federal income tax. The FAFSA is looking for your personal income tax liability which is line 55 of the 2010 Form 1040.
If all of your earned income is the result of wages from an employer, make sure you understand the difference between “withholding” and “liability” on the tax line. Many people incorrectly enter the amount of tax “withheld” from their paycheck as reported on the W-2 form, as their tax paid. That is often very different from your actual income tax liability which is found on line 55 of Form 1040.
Bottom line: Read the directions CAREFULLY!
A mistake on this one line will significantly impact your EFC calculation.
Preparing for next year?
Did you get a refund? Do you like giving the government a free loan for the year? If not, isn’t it time to update your W-4 form so that you are not withholding as much? You could probably use more cash to pay for college this year, don’t you think?