It is that time of the year for parents of high school seniors to complete their FAFSA (Free Application for Federal Student Aid) for the 2014–2015 academic year.
There are two ways you can complete your FAFSA: using estimated 2013 tax information or exact 2013 tax information. If you plan to file your taxes in early February, I recommend that you wait to complete your FAFSA using actual 2013 tax information. However, if you are not likely to file your taxes until late February, March, or April, I would advise using tax estimates on your FAFSA, and returning to the form to make updates after your tax returns have been filed.
If you plan to fill out the FAFSA application using estimated 2013 tax information, it is important to try to be as accurate as possible. To do so, be sure to complete these 10 steps prior to starting your FAFSA form.
PINS are used to sign the electronic FAFSA document. Only one parent and the student will need PINs. Once these PINs are obtained, keep them in a safe place, as they will be your permanent numbers. If, as a parent, you file the FAFSA for another child down the road, you will still be able to sign with the same PIN. As the student files a renewal FASFA each year in college, he or she will also be able to sign with their same PIN.
Using your 2012 tax return and perhaps any other pay stub or W-2 information you can find, estimate your 2013 adjusted gross income. The adjusted gross income is the last line of the front page of your 1040 form.
Using pay stubs or W-2 information, estimate the amount you earned in wages for 2013. If you are married and filing jointly, your spouse’s wages will be required and, thus, will need to be estimated as well.
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Using your 2012 tax return, estimate the amount of federal taxes you will pay in 2013. This is not the amount withheld or the amount you pay after you file. It is the actual amount paid in federal taxes, an amount that is found on line item number 55 on the 1040 form.
Using your 2012 W-2, estimate your untaxed income. The most common type of untaxed income is the amount (if any) you contribute at work to a retirement program, which reduces your adjusted gross income. This is usually the voluntary contribution you make to a 401k or 403b program. If you are self-employed, it could also be a contribution to an SEP.
Compute the current value of your cash, savings, and checking accounts. This is not an estimate, but should reflect the actual value of your accounts on the day you file the FAFSA.
Add the value of the investments you may have in any or all of the following types of accounts: CDs, money market accounts, mutual funds, stocks, bonds, trusts, commodities, real estate equity (other than your home), 529 college savings accounts, and pre-pay tuition plans. Even if the 529 plans are listed as the student’s, they should be reported as yours (the parent’s).
There are a few types of investments that you specifically should not list. Do not list the equity of your home, the value of a business if it has fewer than 100 employees, or the value of a family farm if you live on that farm. You also should not list the value of your retirement plans, which could include qualified plan programs at work, IRAs, Roths, annuities, and the cash value of life insurance.
If your student worked in 2013, repeat the previous steps with their information in mind. If the student did not work, then you would simply indicate 0 in all of the income-related questions.
If your student has saved any money or holds any investments, be sure to repeat steps 6 and 7 with their information.
The colleges that you select on the FAFSA will receive your EFC (Expected Family Contribution) number—the number that is calculated as a result of the FAFSA and determines the student’s eligibility for need-based financial aid programs.
Your EFC number, and possibly other supplemental financial information colleges may require, will be reviewed alongside your student’s academic information and application for admission to compile an official award letter. This award letter, sent to you from the college, should arrive by April and will allow you to choose which aid programs you will accept and determine your net price (actual out-of-pocket cost) for that school.
Remember, to receive an award letter, a student must apply for admission, fill out a FAFSA application specifying the colleges that will receive the results, submit the FAFSA, and get accepted to the school.
Once you have completed these 10 steps, then you are ready to start filling out your FAFSA with estimated 2013 tax information. Once you complete your 2013 tax return, be sure to return to fafsa.ed.gov and edit your answers to reflect exact income amounts.
Watch this free video with step-by-step instructions for how to fill out the FAFSA application.