estimating taxes for the fafsa
Posted : December 12, 2007
Last Updated : December 11, 2014
The Free Application for Federal Student Aid (FAFSA) must be completed every year by students who wish to be considered for federal and state aid. Because federal and state funds are provided on a first-come, first-served basis, you and your child need to complete the FAFSA as soon as possible after January 1 of the year for which aid is needed.
Most schools have financial aid priority deadlines in February and March. These early deadlines can make it difficult for some families to have their Federal Income Tax Returns (required for the FAFSA) completed in time. Because of this, the FAFSA allows families to estimate income and tax information.
How to Estimate Taxes
If you or your student's income has not changed in the past year, the easiest way to estimate your taxes is to just use last year's tax information. If family income has slightly changed, use these steps to estimate taxes:
Take the line item from your federal income tax return entitled, "This is your total tax."
Divide this number by your adjusted gross income.
Multiply by your estimate of this year's adjusted gross income to obtain an estimate of your tax refund or payment.
You can also search for a website that has a free tax estimator, such as TurboTax Estimator.
After Filing Taxes
After you and your child file taxes, he should make corrections to his FAFSA using the FAFSA IRS Data Retrieval process. Please note: The FAFSA IRS Data Retrieval tool cannot be used until 2-3 weeks after electronically filing a tax return and 8-11 weeks after filing paper tax returns.
If your child chooses not to use the FAFSA IRS Data Retrieval process or retrieves IRS data but subsequently changes it, he will need to explain to his institutions why information he provided is more accurate than the information that would have been obtained directly from the IRS. If your child elects to not use the retrieval process, he will be subject to being selected for verification and will need to provide a tax return transcript from the IRS.
Selected for Verification
If your child gets notification that his FAFSA has been selected for verification, be sure to read any messages from the Department of Education appearing on the Student Aid Report. Submit any forms that the Financial Aid Office requests, which will probably include copies of your and your student's tax return transcripts and W-2 wage earning statements. Do not turn in any documentation that was not requested. For example, if you turn in too many tax schedules and it shows information that the FAFSA has not asked for, the Financial Aid Office will be obligated to use that additional information in calculating need. Only turn in what is requested.
If you have any questions about estimating taxes for the FAFSA or being selected for verification, contact the Financial Aid Office at your child's school.