<p>D worked as an independent contractor for a company, and earned several thousand dollars. While below the level at which she'd be required to file an income tax return, she did end up having to file because she has to pay Social Security & Medicare taxes on the income, both the employer and employee share. When working through the FAFSA, I didn't see any question that ever considered this -- her "net" income was lower than someone's would be that had W-2 income, but that doesn't seem to be taken into account. Is that right?</p>
<p>What is the specific question that FAFSA is asking, e.g., to report her earnings from employment? I would consider reporting her AGI from the employment, i.e., net of 1/2 the social security and medicare taxes.</p>
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That’s correct, the FAFSA does not give any credit for when the individual has to pay the employer portion of FICA, other than the deduction for 1/2 of the employer portion.</p>
<p>When your tax rate is zero, you get no benefit from the deduction though.</p>
<p>This hurts self-employed people because it leaves them with less to pay their EFC than a W2 employee making the exact same amount. Typically though, self-employed people have all kinds of expenses (mileage, tolls, etc) they can deduct that W2 employees don’t get, so this helps even it out.</p>
<p>There are winners and losers in the expense game, though - if you don’t have any, you lose.</p>