Hi, so where on earth am I supposed to put these in the FAFSA? It’s royalties from books and income from a LLC-owned gas lease that we have an interest in.
FAFSA has specific instructions to use these lines from the 1040:
7 + 12 + 18* + Box 14 [Code A] of IRS Schedule K-1 (Form 1065)
My husband has 1099 income (that’s line 12) but the majority of his income is from line 17 of the 1040, and that’s not mentioned anywhere that I can find.
thanks for any guidance - i knew this would be a problem…
update - found this online at a site called edquest:
Amounts on Line 17 or Line 21 from a tax return are not considered earnings from work; these amounts should not be listed in these questions.
And elsewhere, at finweb, several treatises on how incorrect the current formula is: If you have passthrough income (which the royalties are), you are screwed and your EFC will be higher.
Sigh.
But the royalties are income, be it ‘passthrough’ or ‘earned.’
Is there a way to file supporting documentation to show all this extra income?
I know it seems counter-productive to the uninitiated, but everything I’ve read says it is in the parents’ interests to have that number be high - that if it isn’t, the calculations show your higher AGI, a lower-than-expected entry for earnings from work, and voila! Lots of extra $$ for college costs!
@twoinanddone
I agree. And I want to put it in there. but the instructions are very specific about which lines to use:
IRS Form Enter Amount From Lines
1040 7 + 12 + 18* + Box 14 [Code A] of IRS Schedule K-1 (Form 1065)
I found this on edvisers’ site:
Income earned from work is used to calculate an allowance for FICA taxes (Social Security and Medicare tax), an allowance for state and other taxes and the employment expense allowance. These and other allowances are subtracted from income when calculating the expected family contribution (EFC).
Income earned from work is also used instead of adjusted gross income (AGI) for people who are not required to file a federal income tax return.
***Unfortunately, the FAFSA instructions do not correctly include all income earned from work. This usually leads to a higher expected family contribution (EFC), hurting the applicant’s eligibility for need-based student aid. The current instructions omit partnership income (which is usually reported on line 17 of IRS Form 1040), **retirement plan contributions (Line 7 of IRS Form 1040 is based on Box 1 of the W-2 statements, instead of Box 5). It includes taxable scholarships and fellowships (which are usually not subject to FICA taxes) and the employer FICA contribution.
and here, finaid-dot-org:
The Federal need analysis methodology uses income earned from work to calculate an allowance for the employee share of FICA taxes. In some cases, however, income is subjected to FICA taxes but not included in income earned from work. In those situations it is appropriate to use professional judgment to adjust income earned from work to include the missing FICA income.
This problem most often occurs with partnerships. Partnership income is usually reported on line 12 of the income tax return as part of Schedule C, and so is included in income earned from work. (Income earned from work is based on lines 7 (wages), 12 (business income), and 18 (farm income) of IRS Form 1040. It is not based on the gross receipts of the business.)*** On occasion, however, partnership income will be reported on line 17 instead of line 12. In that case it will not have been counted as part of income earned from work even though the taxpayer paid FICA on the income.***
I’m thinking we appeal at the institution level and that’s about our only recourse.
Partnership income doesn’t ever get appropriately reported on Line 12 of the 1040.
The calculation you describe is income subject to FICA / SECA taxes. Box 14 Code A of the 1065 K-1 is partnership income subject to SECA. That’s how it gets counted.
The book royalty income should be subject to SECA; pull out the K-1 and check. Working mineral interests are as well, but royalty mineral interests are not.
Wouldn’t book royalties be considered some type of income?
I don’t think that’s the question; the question is how it’s reported on a 1040 and how it’s then pulled over to the FAFSA (or not).
Then let me try my question again…if royalties are income…there has to be some way they are reflected on the tax return, AGI and therefore placed on the FAFSA.
@allyphoe - No 1065 K-1. Lots of schedules. Not that one.
@thumper1 - They are reflected on the tax return on Line 17.
The line isn’t mentioned anywhere in FAFSA.
We are going to have to ask for professional judgment or whatever it’s called.
The 1065 K-1 is not a schedule on your tax return. It’s the form the partnership provides to you. It’s an original document that your return is based on, analogous to a W-2 or 1099. The preparer of either the partnership return or your personal return can probably find a copy for you if you can’t find it with your original documents.
You don’t need professional judgement. You just need to follow the FAFSA instructions.
Where did you report this income on your tax return? Normally that type of income is reported on Schedule E, which would then be included as part of your total income on line 22 of the 1040. I’m not familiar with the FAFSA so I don’t know which line that would go on.
Schedule E flows to Line 17.
Are you using the data retrieval tool in the FAFSA to import your tax return info?
It will fill this out for you.
Then it will ask for income from work for each parent.
The FAFSA considers taxed income (listed on tax return) and untaxed income (pretax 401 contributions in 2017, Roth withdrawals).
@mommdc Income from work is what the OP is trying to calculate.
@allyphoe Yes, and that can be imported via DRT. But people might forget untaxed income that has to be added manually.
Tx all - I talked to our accountant today and he explained to me why we don’t add line 17 in to the income earned from work question: Basically, we didn’t pay FICA etc on that money (just income tax) and so it shouldn’t be used in these allowance calculations.
But then there should be another line on the fafsa where you do put that income.
Our schedule E income is included as part of AGI on FAFSA. But we only report W2 income as income from work for my H.
In your case self employment income is probably the income from work for your H.
The FAFSA separates AGI and income from work for different income deduction calculations like for social security tax deduction, state tax deduction, employment expense deduction (if both parents work).