Hello, for FASFA and CSS, can colleges see my parents’ net income (including money in the s corp), or just the smaller salary that they pay themselves?
@BelknapPoint @kelsmom might weigh in.
For Profile schools, there is a much deeper dive into the finances.
An S Corp is a pass through entity, so business income passes through to your parents’ 1040 in addition to the W2 wages they pay themselves.
In most cases, CSS schools will ask for the business supplement in addition to the 1120s for the S Corp, which allows them to see everything. You’ll also be asked to report the business value.
There are some cases where a family owned business an avoid some of this reporting but I’m unaware of any cases wrt the super generous FA schools. For some of the schools that are FAFSA only you might not need to report.
1 Like
Dang okay. The way my family explained it to me was I’d only have to report the salary they pay themselves. But, according to your comment, it doesn’t matter.
You’ll report their adjusted gross income, which will include W2 earnings plus business income (reported to them on a K-1, entered in schedule 1, flowing through to AGI) plus other income.
If they don’t have any business income then it’s true you wouldn’t report any. But with an S Corp they can’t really control whether business income flows through. So if they had business income it’s already in their AGI.
They might have been thinking of the asset exclusion for family businesses on FAFSA:
I’m not sure what sort of business your family has. But there are deductions allowed by the IRS for tax purposes that are not allowed for financial aid purposes. The ones not allowed for financial aid purposes are added back in as income.
There are some colleges that are more likely to do this. These are Profile schools.
The small business exclusion is going away effective 2024-25. Starting with that year, the net worth of small businesses, must be reported.
Also starting in 2024-25, the FAFSA simplification requires all students and parents to import their tax information directly from the IRS onto the FAFSA. Everything will be automatically populated. Currently, schedule K-1 box 14(code A) is the only information carried directly from that schedule that is reported on FAFSA. Starting in 2024-25, I’m not sure even that particular will be carried onto the FAFSA. I am not familiar with how schedule K-1 works, but if any numbers are carried from that schedule onto the 1040, that information will flow through from the 1040 onto the FAFSA.
1 Like
Although HR 1250 would bring back both the Farm and Small Business exemptions: https://www.congress.gov/bill/118th-congress/house-bill/1250?s=1&r=9
But we can’t count on that, although evidently there is bipartisan support.
Some info here, requires registering for free account:
It will be interesting to see what happens with this. We’ll see how Congress responds.
1 Like
I believe this would impact FAFSA only, right?
Those Profile schools could still take a much deeper dive into the family’s actual finances.
2 Likes
My son did CSS schools and they required us to upload the tax forms from my husband’s S-Corp to IDOC for verification. I don’t believe we needed to report in the same specific manner the company’s assets.
I wonder if they will fix the issue for those of us with annually issued PIN numbers due to threats of identity fraud? I was told that this was why the system would not work for me this year.
I don’t know what they’ll do in a case like yours. If I were to guess, it would be that you can enter it manually, but you’ll be automatically selected for verification and will be required to submit your tax transcript to each school as part of verification.
1 Like
Actually…are they fixing the tax deferred account rollover issue? That’s not reflected on the tax return…and folks don’t seem to easily see where they have to note this on the FAFSA.
I don’t know. The FUTURE Act gives the authority to pull information from the 1040, and the Act spells out specifically what will be pulled in. “Amount of individual retirement account distributions not included in adjusted gross income” is specified in the Act, but I don’t know how it will be treated in the formula. If the default assumption is that it’s a rollover, the issue is fixed. But if it’s treated as untaxed income, it’s not. So I honestly don’t know, but because the paper version asks for the untaxed portion plus asks if there was a rollover, I am going to say that the issue remains. However, I don’t know what it looks like when someone completes it online … hopefully, the prompt is harder to miss.
1 Like
THIS!