<p>I just received an email informing me that my daughter's 2010/2011 FAFSA has been updated and it will be sent to her school. The EFC is almost $2000 higher now than it had been. I see that my first time home buyer's tax credit of $8000 is now listed under "parents' other untaxed income or benefits". How can a tax credit be considered income? Is this a mistake?</p>
<p>I’ve tried searching for a definitive answer on this and have not found anything. There was a thread about it earlier in the year, but there was not really a definitive answer there either. But there were some tips about what to do if you feel an error has been made (kelsmom’s post on the 2nd page about the ombudsman)</p>
<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/684377-fafsa-8000-first-time-home-buyer-tax-credit-2.html[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/684377-fafsa-8000-first-time-home-buyer-tax-credit-2.html</a></p>
<p>Hope you can get it sorted out</p>
<p>It seems pretty obvious that it would be considered income. Is it the form of distribution (as a tax credit) that makes you think of it in differently? If it had been sent as a check, would it feel more like income?</p>
<p>Not obvious at all actually. Most tax credits are *not * treated as untaxed income by FAFSA and several of the most common ones are specifically mentioned as not being treated as untaxed income in the FAFSA instructions. This one was a new and short lived credit and its treatment has never been addressed by FAFSA as most of the others are. It often takes FAFSA a year or 2 to catch up with new tax impacts and as this credit has come and gone it will probably never be fully addressed.</p>
<p>Hopefully one of the helpful FA officers that frequent CC will see this thread and have some accurate information.</p>
<p>Well sure, but most tax credits aren’t an intentional one-time distribution of unearned income. This was just an expedient distribution mechanism. Most tax credits are established offsets in the tax code (as you note).</p>
<p>It’s similar to folks who had their mortgages reduced by the government action. (Not a change in monthly payments, but a recalculation of the principal). I read that some folks were surprised that the resultant income was taxable. But both of these examples are unearned income in the very purest form.</p>
<p>It would be great to see an FA officer’s response. It would be very surprising to me it wasn’t considered income.</p>
<p>Think of it this way - the FAFSA would consider similar one-time events such as an inheritance, a lottery win, or a straight cash gift as income, correct? Even if it was spent (on a car, a vacation, or in this case, a house), the $8000 income was still real. That’s a free $8000 that didn’t come from his savings or earnings.</p>
<p>The FAFSA shouldn’t care that an equivalent amount was spent; they’re simply trying to calculate the savings and the true cash inflow to that family. This would be an example of pure cash inflow.</p>
<p>It occurred to me that the FAFSA experts already spoke about this - they corrected the submitted form and updated the EFC.</p>
<p>Anyway, I googled this, and it was easy to find. On <a href=“http://ifap.ed.gov/fsahandbook/attachments/1011AVGintro.pdf[/url]”>http://ifap.ed.gov/fsahandbook/attachments/1011AVGintro.pdf</a>, “Changes for 2010-2011”, there is this sentence: “On page 21 we noted that the first-time homebuyer tax credit of 2009 counts as untaxed income on the FAFSA.”</p>
<p>Yes, as MisterK posted, the credit is included as untaxed income that does seem to be the case. The verification handbook contains the following:
</p>
<p>
Not necessarily, though in this case they were correct. We have worked with 2 separate FA offices. At my daughter’s school they are excellent, extremely efficient and know what they are doing. At my son’s school they were very slow and inefficient and were always making mistakes with aid. They were so frustrating to deal with as well - I remember trying to get the COA from them so I could determine what we could withdraw from his 529 account without tax penalties, they didn’t seem to understand what I was even asking for. I finally had to email the head of the dept to get the information I needed.</p>
<p>Good point. As with so much in life, a lot depends on exactly who you’re working with. There are rules, but there are also people. In the other thread, one guy appears to have been able to convince a regional FAFSA office to omit the income. I guess the lesson is to just be persistent and test the lines.</p>
<p>“FAFSA offices” do not exclude anything. Families submit info, that info is processed by the central processor, and the schools receive the information in a computer file. Only the financial aid department will review and update information, and then only if the student is verified.</p>
<p>If someone convinced someone else to omit this, they must have gotten an inexperienced aid officer to do it. It is untaxed income, as the verification guide states.</p>
<p>Well, here’s what happened. DD received an email answer from her scholarship/Fin Aid advisor stating something to the effect of all FAFSA’s are being audited for this particular circumstance. When all is said and done, with reduction of Pell Grant and increase in income they would not only have wanted another $1000 for this coming semester but they would also have wanted another $1000 for the current semester that is almost over. He/her Fin Aid office don’t think this is particularly fair, especially mid year. They are going to shift grant monies around and take care of her so it will not effect her at all. I love her school!</p>
<p>That’s great! I love your school too!! :D</p>
<p>That’s terrific news! :)</p>
<p>Unfortunately, the verification guide and regulations often come out after aid offices begin the verification process. The result is that we can find out after the fact that we were supposed to be doing something … like adding the first $2400 of unemployment income into untaxed income, since the 1040 instructions are not to report it but the FAFSA instructions don’t say to include it in untaxed income. Aid offices must comply with regulations no matter what time of year we find out about them, so we sometimes have to go back & try to clean up things that may have gotten through. It’s nice when the administration can help out with grant money, as OP’s school was able to do. It softens the blow.</p>
<p>Kelsmom, just out of curiousity, are there any other tax credits that must be reported as untaxed income for FAFSA?</p>
<p>Two adjustments to income from the first page of the 1040 are expected to be reported as untaxed income: Payments to self-employed SEP, SIMPLE, and qualified plans (line 28) and IRA deductions (line 32). These reduce taxable income and are reported on the FAFSA as “IRA and KEOGH Deductions” in the untaxed income section.</p>
<p>Other tax-return/W2 related items that must be reported (as many of you here already know) are the untaxed payments to pensions (W2 box 12, D, E, F, G, H, and S), tax exempt interest (line 8b), untaxed portions of IRA distibutions (line 15a-line 15b), untaxed portion of pensions and annuities (line 16a-line16b) … although qualified rollovers are not reported, and the fist $2400 of unemployment payments that does not get reported on the 1040 (but must be reported on the FAFSA as Other Untaxed Income).</p>
<p>Most tax credits are not reported because the regs state that they do not need to be reported. First time home buyer credit is reported because the regs do not address it as being not having to be reported.</p>
<p>Hello - I’ve been wondering too about this tax credit since my dad recently purchased our first home (in June of this year). How much will this tax credit affect our EFC? I currently have an EFC of $2450-ish, but next year my sibling will also be in college.</p>
<p>The best way to figure out its impact is to run the numbers in an EFC calculator. The one on the College Board website is good.</p>