Parents' Finances and the FAFSA | Step 8
Step #8 of the FAFSA Online Guide to the FAFSA Form tutorial follows. If you have not read through steps 1-7, we suggest you start with step #1. If you are ready to file your FAFSA application or Renewal FAFSA form online, then please click here.
Parent Financial Information
Once you have completed basic demographics, you will go through and complete basic questions about your parents' financial information. These questions are identical to the student questions you completed earlier, but are from the perspective of the parent.
The same advice applies to your parents' finances as yours: filing a tax return (or at least fully completing one) will greatly simplify and speed up this part of the FAFSA. We recommend completing a full IRS 1040 tax form prior to doing this part of the FAFSA.
This year, parents and students have the option to use IRS Data Retrieval to auto-fill the tax section. Data retrieval will become available February 1. If you wish to file the FAFSA before then, you can estimate your tax information and use IRS Data Retrieval in the correction process later.
One set of questions that can cause some confusion is the set about federal benefits programs that your family may participate in. This question appears if you choose Don't Know about a parent being a dislocated worker. If anyone in your parents' household received benefits from the programs listed, check the appropriate boxes.
This question impacts some calculations of your Expected Family Contribution; receiving any of these programs' benefits may qualify you for an automatic zero EFC, meaning you won't be expected to pay for college out of pocket.
Is your parent a dislocated worker?
A dislocated worker is someone who meets ONE or more of the following:
- Lost their job or been laid off
- Is receiving unemployment benefits and is unlikely to return to a previous occupation. (like a telephone switchboard operator, for example)
- Is self employed but is unemployed due to economic conditions or natural disaster
- Is a displaced homemaker - someone who previously provided unpaid services to the family, like a stay at home parent, is no longer supported by a partner, and is having trouble finding a job
A dislocated worker is NOT:
- Someone who quit
- Someone who got fired for cause
- Someone who just doesn’t want to work
If you answer yes to this question, at some point you may be asked to provide proof that you are a dislocated worker. You will need your termination notice, unemployment benefits paperwork, and any other documentation you can have handy to demonstrate that you meet the conditions of being a dislocated worker.
For income tax paid in 2012, refer to line 55 on the IRS 1040 of the parents. Do not use line 75 ("Amount you owe") .
For exemptions in 2012, refer to line 6D from the IRS 1040 of the parents. Chances are it will be the same number of people in the household.
There's a long laundry list of financial items besides wages that follow. Check the appropriate boxes for any that your parents have had in the past year. Note that some of the checkboxes will spawn additional tips and text boxes if you check them.
Remember that everything in this section deals with the finances of the parents!
- Hope and Lifetime Learning Credits: check this if you claimed these in 2009. For parents of dependent students, chances are the parents have claimed the credits on their tax returns and not the student's tax return.
- Child support paid: This is child support that the parent has paid to someone else to support their children.
- Work-study: If the parent has participated in the work-study program, enter that information here.
- Grant and scholarship aid: This is for taxable scholarship aid reported on the parent's tax forms. Chances are for parents of dependent students, taxable scholarship and grant aid was reported on the student's tax return and should not be reported here.
- Combat pay: If you are a veteran or on active duty, indicate your combat pay here. Be sure you report the taxable portion of combat pay specified in Box 12, Code Q on your W-2. Do NOT use the amount from Box 1!
- Cooperative education program earnings: This is pay earned by the parent as an intern in a co-op program.
- Deferred pension and savings plans: This question deals with retirement savings usually administered by an employer. If your parent participates in a retirement plan of any kind at work, this should be on your W-2 form that they receive from their employer by the end of January of each year.
- IRA deductions: This question deals with retirement savings usually set up by your parents. Your parent should receive tax forms from those plans each year; once they have done their full IRS 1040, copy the number from line 28.
- Child support received: This is child support that the parent has received from someone else to support their children.
- Tax exempt interest income: If your parent has earned interest on things like tax free savings bonds or other tax exempt financial services, grab line 8b from your IRS 1040. For some parents, a portion of college savings (if in the parent's name) may fall into this category; contact your financial planner or tax expert for clarification.
- Unused portions of IRA distributions and untaxed portions of pensions: If your parent has received money from a retirement plan (cashed out), report the appropriate data from your IRS 1040. It is important to note that if your parent has rolled over a retirement plan from one company to another, or one plan to another, the rollovers do not count. Only cash in hand counts.
- Allowances paid to clergy and military: If your parent receive any kind of stipend from the military, clergy, or other organization where you do not really get a salary, report that here.
- Veterans non-education benefits: Detail your parent's veterans benefits here. This specifically excludes education benefits like the GI Bill. If your parent has any questions about veterans benefits, make sure they contact your VA education officer.
- Other untaxed income: Other untaxed income is kind of vague. Some examples shown are worker's compensation or disability, but the more illustrative list is the list of what not to include, such as student aid (including scholarships), earned income credit, tax credits for children, welfare, Social Security, workforce investment, combat pay, flex savings plans, foreign income, and most other tax credits like special fuels. Chances are most people do not have anything to add here - if you think you might, you will want to consult a qualified financial planner.
- Money paid on your behalf: Any money someone else is paying on your behalf goes here. Use common sense for this question - if someone paid rent for you, it should go here, but someone buying you a Big Mac and fries can safely be excluded.
The final question in this section deals with money your parent has on hand. This financial data is as of the day your parent files the FAFSA. Thus, if your parent is paying rent and has their monthly rent in the checking account, that pile of cash will count against your family. If they paid rent the day before and there's nothing left in the checking account but crickets, that will work in your favor. Make sure your parent has as little cash in checking, savings, and other cash-equivalents as possible on the day you file your FAFSA.
>>Continue to Step 9: Student Financial Information