<p>I know there are different ways of reducing federal taxes but I'm wondering if these deductions/credits are all treated the same for financial aid purposes. I know we've discussed that FA offices add 401K contributions "back in" when calculating EFC as they feel this income could be diverted from retirement to pay for college. I assume that goes for IRA deductions as well. </p>
<p>Do all deductions that reduce AGI get added back in for FAFSA and CSS? For instance, the Tuition and Fees deduction that is currently available will reduce the AGI by $4000. Will that just get added back in for FA purposes as available funds? For someone close to a cutoff, a few thousand dollars can make a difference. I remember some of the outside scholarships my son applied for wanted to see our AGI.</p>
<p>Are the education credits added back in when determining ability to pay by colleges? They don't reduce AGI, but that $ is "extra" so will college FA offices up the EFC to reflect that extra $?</p>
<p>It depends. Remember that for federal aid, it is NOT the financial aid offices who decide what gets added back in … it is Congress, who writes the federal aid laws that govern the EFC formula. So the untaxed payments to pensions, etc. that are collected in the Untaxed Income section of the FAFSA … these are the things that get “added in” … are added into income because the government regulations stipulate that they get added in. </p>
<p>As for the items collected on the Profile that are not collected on FAFSA, how those are actually used varies by college.</p>
<p>Your education tax credits usually get deducted from income for schools who use the FM or Federal Methodology. (Typically a FAFSA only school) Schools that use the IM or Institutional Methdology (use the FAFSA & usually the CSS Profile or ask “Profile type questions” like home equity on their own form) do not deduct those education tax credits from your income. </p>
<p>If you have self-employed income, many schools may add back in your vehicle expense as income or depreciation expense as income.</p>
<p>For FAFSA the education credits are not added back. In fact the opposite. The education credits reduce your taxes which would increase income available in the EFC formula. So the FAFSA EFC formula actually reduces your available income by the amount of the credits so you are not penalized for having take the education credits. Tuition and fees deductions are not added back to the AGI in the EFC formula. Basically the formula adds items to income that have to be reported in question 93 (such as IRA contributions, certain untaxed income etc) and deducts from income items that must be reported in question 92 (like education credits, taxable scholarships included in the AGI, Work study income etc).</p>
<p>FA officer do not add back IRA contributions (unless you did ot correctly report them on FAFSA in which case they are obliged to make that correction). That is all done automatically by the EFC formula and is reflected in your FAFSA EFC.</p>
<p>I have no idea how CSS schools handle any of the above.</p>
<p>Self employment deductions maybe be added back- home office deduction, depreciation, etc. Things that they see as not actually being cash out of your pocket.</p>
<p>Thanks for the info. I’m about to start with my 3rd kid so I should understand all this by now, but it seems each kids brings a new situation and I get things mixed up (1st kid FAFSA only school, 2nd kid CSS, 3rd kid who knows?).</p>