2012 - 2013 7 easy steps to the fafsa - Step 5

Hi! We’re already on Step 5! You and your parents should have your 2011 federal income tax returns handy when completing this section. But, if you haven’t filed your tax returns yet, you can estimate for now and update the FAFSA later. Here, select whether or not your parents have completed a 2011 federal income tax return. Remember, you may still proceed even if their tax return is not finalized. Just use estimates for now! You can update it later. Beginning on February 1st, if you select that your parents have already completed their 2011 federal income tax return, you will be presented with a series of questions that determine your eligibility for the IRS Data Retrieval tool. If you check “none of the above” you’ll then be given the option to “Enter your PIN” and “Link to the IRS.” Your IRS data should be available within 1-2 weeks of filing your taxes electronically or within 6-8 weeks if you filed a paper return. We highly recommend that you use this option, as this can both simplify the application process, and minimize the verification documentation your school may ask from you later. If you choose to use IRS Data Retrieval, you will be notified that you are leaving FAFSA on the Web. Click OK. On the IRS Website, enter the requested information. Be sure that you enter all information EXACTLY as it appears on your tax return. Click Submit Once the IRS has validated your identification, your IRS tax information will display. Click “Transfer Now” and then return to the FAFSA website using the links provided. It’s as simple as that. If you transfer your IRS tax information, questions that are populated with tax information will be marked with “Transferred from the IRS.” Don’t alter this data. If you are selected for verification, your school may choose to use unaltered information for verification purposes, in lieu of a tax transcript. The next screen will ask you to specify the type of tax return your parent filed or will file. Keep in mind that if you used the IRS Data Retrieval Tool, many fields may already be populated. The following questions refer to items found on your parent’s tax return or W-2’s. Line numbers will differ depending on the type of tax return filed so be sure to follow the instructions provided in Help and Hints. Let’s go through an example. This question asks for your parent’s Adjusted Gross Income (or AGI). Depending on what type of return your parent filed, the information may be found in different places. If your parent’s filed a 1040, their AGI will be found on line 37. If they filed a 1040a, you’ll find AGI on line 21. If they filed a 1040ez, it will be on line 4. The next question on the FAFSA asks for the amounts of your parents’ wages in 2011. This information can most commonly be found on your parent’s W-2 forms that they receive from their employers at the end of the year. Next, you will also be asked to indicate your parents’ dislocated worker status. A dislocated worker is someone who has lost his or her job, has been laid-off, has received a lay-off notice, or is receiving unemployment benefits. This status also includes parents who are self- employed but have been unemployed due to economic conditions or natural disasters, or are displaced homemakers. For more information about dislocated workers, refer to Help and Hints. If you do answer “yes” to this question your financial aid office may ask for supporting documentation. You may also be asked to specify whether your parents or anyone in your parents’ household received federal benefits in the past two years. Please note that Supplemental Security Income, or SSI, is not the same as Social Security Benefits. SSI is generally paid to persons with disabilities. Depending on your answers to the previous questions, you may be asked whether your parents are eligible to file a 1040A or 1040EZ. Parents who are self-employed, itemize deductions, or make over $100,000 are generally not eligible to file the 1040A or 1040EZ. If you’re unsure, it’s OK to select “Don’t know!” Continue to fill-in your parents’ tax return information on this next screen. Be aware: parents commonly report their income tax amount incorrectly. If your parent’s filed a 1040, the amount they paid in Income Tax will be found on line 55. If they filed a 1040a, Income Tax will be on line 35. Lastly, if they filed a 1040ez, Income Tax will be on line 10. This question asks for your parents’ additional financial information and annual untaxed income. Make sure you read each line carefully and use annual amounts from 2011. Check all that apply and provide amounts. Some of this information, such as Hope and Lifetime Learning tax credits, may be found on your parents’ tax return. Include grants, scholarships, and combat pay only if they are reported in your parents’ adjusted gross income. And… only report child support paid for children not included in your household. Payments to tax-deferred pension and savings plans are found in box 12 of your parents’ W-2’s. Make sure you only include amounts reported with the codes D, E, F, G, H and S. These items refer to amounts found on your parents’ tax return. Remember, line numbers will differ depending on the type of tax return filed so be sure to follow the instructions provided in Help and Hints. Let’s go through just a couple more examples. For IRA deductions, add boxes 28 and 32, if your parents filed a 1040. Or use line 17 if they filed a 1040a. For tax-exempt interest, use line 8b both if they filed a 1040 or a 1040a. These questions are not found on your parents’ tax return. You should ask your parents if they receive child support, living allowances, veteran’s non- education benefits, or other untaxed income such as worker’s compensation or disability. Make sure not to include other untaxed income listed “here.” Phew! Almost done! You may then be asked if your parents’ assets exceed a specific amount. The amount is determined by other information you previously entered, and will differ from student to student. If you answer “yes”, you will need to provide your parents’ asset information. The amounts reported should reflect values as of the date you file your FAFSA. Report the total current balance of all cash, savings, and checking accounts held by your parents. This next question asks for the net worth of your parents current investments. Investments include any real estate owned other than the home your parents live in, trust funds, money market funds, mutual funds, stocks and bonds, and CD’s. Parent investments also include education savings accounts such as Coverdell and 529 college savings plans even if they are under the student’s name. The net worth of an investment is the current value of the investment minus the related debt. For example, the net worth of a rental property is the current market value minus the mortgage. Do not include the value of the home your parents live in, life insurance, or qualified retirement plans. In this last question, report the net worth of your parents’ business or farm. Do not include the value of a family farm if your parents live on and operate it. Also, do not include the value of a business if it’s owned and controlled by your parents and has less than 100 full-time employees. We’ve now covered your parents’ finances. We’ll move on to yours. This first question asks you to specify if you have or will complete a 2011 federal income tax return. You may check the IRS website at www.irs.gov to determine whether you are required to file. If you have completed an income tax return, you will be given the option to use IRS Data Retrieval. The next screen will ask you what type of tax return you have filed or will file in 2011. If you selected “Will file,” you can estimate income information now and update the FAFSA later. If you will not file a tax return but worked in 2011, you will still need to provide W-2 information. However, if you did not earn wages in 2011 and did not receive a W-2, enter “zero.” The following questions refer to items found on your tax return. Line numbers will differ depending on the type of tax return filed. Right, so be sure to follow the instructions provided in Help and Hints and pay special attention to the line numbers specified. This question asks for additional financial information and untaxed income. Make sure you read each line carefully and use annual amounts from 2011. Check all that apply and provide amounts. Remember, include grants, scholarships, and combat pay only if they are reported in your adjusted gross income. Payments to tax-deferred pension and savings plans are found in box 12 of your W-2’s. Make sure you only include amounts reported with the codes D, E, F, G, H and S. These items refer to amounts found on your tax return. Remember, line numbers will differ depending on the type of tax return filed so be sure to follow the instructions provided in Help and Hints. However, these questions are not found on your tax return. You should report living allowances, veteran’s non-education benefits, other untaxed income such as worker’s compensation or disability and any money received or paid on your behalf. Make sure not to include other untaxed income listed “here.” We will now move on to your asset information. The amounts reported should reflect values as of the date you file your FAFSA. Report the total current balance of all your cash, savings, and checking accounts. This next question asks for the net worth of your current investments. Investments include trust funds, money market funds, mutual funds, stocks and bonds and CD’s. Congratulations! The hard part is over. Continue on to Step 6 for information on signing and submitting your FAFSA.