I have completed my FAFSA for the 2023/2024 and after reviewing my answers, I am wondering if I need to make a correction and add my K-1 (Form 1120-S) income to Parent 1 Income. The instructions say to add K-1 (Form 1065) Box 14 (CODE A) and says nothing about K-1 (Form 1120-S), so I did not add the K-1 (Form 1120-S) amount to the Parent 1 income. My AGI accounts for the K-1 (Form 1120-S) amount, but when I add Parent 1 and Parent 2 income from work without the K-1 (Form 1120-S) amount, it does not match the AGI and is short the K-1 (Form 1120-S) respective amount. When I run an EFC calculator, I noticed that the EFC is higher without the K-1 (Form 1120-S) income and lower with the K-1 (Form 1120-S) income added. So, my EFC is coming 2K less if I add the K-1 (Form 1120-S) income to Parent 1 income. I wish the FAFSA instructions would say to report/add ONLY K-1(Form 1065). For us with k-1 (Form 1120-S) this is confusing. Any suggestions? Thanks!
Report only what it says to report. It sounds like you completed the FAFSA correctly. Your income from work doesn’t always match the AGI, and that is fine.
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Do NOT report an 1120s K-1 on the FAFSA. It is already included in your AGI.
1065 K-1 is a completely different thing.
The reason adding your 1120s K-1 business income to your parent income from work would decrease your EFC is that the formula would assume social security taxes were paid on that amount. But in the case of an s corp business income that isn’t the case (which is part of the benefit of an s corp).
For most s corp owners, AGI will not match income from work and that is fine.