I am asking specifically about the CSS. Parents are married, Parent 1 is self employed Schedule C Sole Proprietor, Parent 2 is irrelevant for this discussion since has W2 income only and does not own the business.
I know the FAFSA is very clear on what line goes where but for the CSS I am worried about double counting of income.
The question is how much did Parent 1 earn from work?
“Include wages, salaries, tips, and commissions. Include income reported on W-2 forms or other earning statements and any earnings from work that are not included on earnings statements.”
What if Parent 1’s main income is from a 100% owned Schedule C business?
Which was already reported on Schedule 1 Line 3? Do you list it under work again? Is this double counting?
Also what if Parent 1 also made $1000 speaking at a conference and that is reported on Schedule 1 Line 9 already, do you list it again? So income from work would be Schedule C net profit plus $1000 or would you list neither since you already put them on the Schedule 1 3 and 9 response?
Also how does that tie in with what you expect Parent 1’s income from work to be in 2022 and 2023 if their only income is from the business?
If possible if there is something in writing or link that explains it that would be good too Thank you
I don’t have a source for you and my memory of the CSS Profile is fuzzy. If you can share the actual CSS questions (re: business or other income) that’d be helpful.
But I’ll tell you how I’d think about this and maybe that might help a bit.
These forms ask about the components of your income mostly to calculate the payroll taxes deducted from some portion of your income (the rationale being that less of the income subject to payroll taxes is actually available for college, whereas in theory all of business income or dividends not subject to payroll tax are available). It would make more sense to ask what amount of your income is subject to payroll tax and what amount isn’t.
Schedule C income is a bit unusual compared to, say, S Corp income because your Schedule C earnings are subject to self-employment tax.
That’s why FAFSA includes lines 3 and 6 from 1040 schedule 1 as income from work.
I would be inclined to follow this FAFSA practice on the CSS (unless the wording of the questions or specific instructions suggest otherwise), including lines 3 and 6 in addition to any W2 wages as income from work.
I would then make sure NOT to include those amounts as business or other income, which might require subtracting them from line 10 on Schedule 1 before reporting that number. That might mean reporting 0 in business income, which seems nonsensical. But it is not as if you’re hiding that income, which is already included in your AGI. You are simply reporting it as income subject to payroll tax.
Now, if the CSS instructions specifically ask for all amounts from 1040 line 8 to be reported as business or other income, I might rethink this approach.
Others might have more recent experience with this and better advice.
That is so helpful! It also explains why on the NPC when you increase amounts from work (as opposed to interest or dividends) and AGI is the same EFC goes down slightly at some schools.
Does this mean in the work section I would put the Schedule C net income but not the money from giving a speech? Since the speech was a 1099 NEC?
Here are the actual questions and the explanation box for work
"Parent Schedule 1
Line 3: Business income or (loss)
Line 9: Total other income
Separate question:
“How much did (Name of Parent 1) earn from work in 2021? (required)”
“What should I include?
Include wages, salaries, tips, and commissions. Include income reported on W-2 forms or other earning statements and any earnings from work that are not included on earnings statements.”
The reason I ask is aside from wanting to be accurate, I have tried out various NPCs a few months ago and they treat earned income differently than unearned income (eg dividends and interest). I was never able to determine if that resulted in an actual penalty or simply for the NPC estimate. Certain Top 30 schools penalize dividends more than 200% on the NPC. For example Northwestern I ran some hypotheticals a few months ago and when there was more than about $5000 in dividends, the EFC went up by more than 10K on a family with two kids and an EFC of $30K initially. It was crazy. I have been meaning to post a separate question about that. I called a couple of schools and pointed it out but never got a satisfactory answer or whether it distorts their actual FA the same way or this is only the estimate
Although…having typed the above, then glanced at your quotation again and realized I might have misinterpreted—is the CSS specifically asking you for amounts by line from schedule 1 of the 1040?
If so, I’d just enter what they’re asking for line by line, and I assume they’re treating those numbers appropriately.
I initially read your comment as highlighting line items from your schedule 1 followed by the actual question from the CSS. If that’s an accurate reading then I’d go with my prior answer.
Apologies if any confusion. I couldn’t find a pdf of the CSS profile with a quick search.
They re did the CSS this year so you cannot see the entirety at once. It simply gets you 1 -5 questions at a time depending on section which is really annoying.
First it asks you to answer line by line on Schedule 1, we only have line 3 and then line 8 (speech) which gets totaled in Line 9. The line 3 is from a Schedule C business that one parent owns 100% and where they spend all of their working time except for the one speech income. The same parent received a few thousand dollars to give a speech at a conference (simplest way to explain it) for which they got a 1099NEC and that is reported on Schedule 1 Line 8 and 9).
Several screens later it asks you the question about Parent 1’s income from work without reference to any schedule or line. I copied the explanation box and posted it earlier
I called CSS and the person said I should include the business income in both places and if I was concerned about double counting to put an explanation in the special circumstances box
Okay, I think I misunderstood your earlier quotation then. I didn’t realize the CSS was directly asking for amounts from schedule 1. Sorry for the long reply.
If the CSS is asking you line-by-line amounts from Schedule 1, I would enter those as requested.
I’m not clear why you would again include items from schedule 1 as earnings from work as I would think the algorithms would treat items from line 3 and 6 appropriately. But perhaps not based on the reply you got from the CSS folks.
You might want to check with one of the college FA offices to see what they say.
Thank you. I think they ask for W2 income twice, first as total W2 income by line number from the first page of 1040 then they specifically include it in my quotation above, the only difference being that if both parents (in another situation, not this one) both got W2s, then they want to see how it was split (I would think) by asking the separate question, of how much did Parent 1 earn from work.
What really confused me is that on FAFSA they specifically reference the business income line when asking about work income. Here they specifically reference W2s but not business income. However, based on your first response I think it does help to break out work income and show that Self employment tax was paid