How to Complete the Income Tax Section

It is best if your parents fill out their income tax return(s) before filling out this application. However, if your parents have not completed their income tax return(s), they should calculate their Adjusted Gross Income (AGI) and taxes paid using the instructions for the applicable IRS form. You can get the instructions and the appropriate form at a public library or download them in Portable Document Format (PDF) from

www.irs.gov/formspubs/index.html

When your application is compared with the tax return(s) your parent(s) actually file, the financial information must agree. If there are differences, you will need to correct the information on the web or send it back to the FAFSA processor. The time it takes to resubmit and reprocess corrected data could mean a delay in getting student financial aid.

Even if your parents are not required to file a 2003 income tax return, they will need to calculate their earnings for the year. They should use W-2 Forms and other records to answer the questions in this section.

If an answer is zero or a question does not apply to your parents, enter 0 (zero).

For the 2004-05 FAFSA, the "base year" for completing income tax questions is 2003. Income tax questions give 2003 IRS tax form line references.

Information from one of the following 2003 income tax forms may be listed on the FAFSA in the same manner as U.S. tax information: the income tax return required by Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, the Marshall Islands, the Federated States of Micronesia, or Palau. The amounts on these returns are already reported in U.S. dollars.

Foreign Income

Income earned in a foreign country is treated in the same way as income earned in the U.S. Convert all figures to U.S. dollars, using the exchange rate in effect on the day you fill out the FAFSA. Your parents can find information on current exchange rates at www.federalreserve.gov/releases/h10/update

Your parents should also include the value of any taxes paid to the foreign government in the "U.S. income tax paid" line item. (If the income earned in the foreign country was not taxed by the central government of that country, the income should be reported as untaxed income.)

In many cases, if your parents file a return with the IRS for a year in which foreign income was earned, a portion of the foreign income can be excluded on IRS Form 2555 for U.S. tax purposes. The figure reported on line 43 of Form 2555 (or line 18 of Form 2555EZ) should be reported on the "Foreign income exclusions" line on Worksheet B on page 8 of the paper FAFSA. (The worksheets, such as Worksheet B and others, that you will use to help you complete either a paper FAFSA or FAFSA on the Web, are also available online at www.fafsa.ed.gov). The final total for Form 2555 must not be reported as untaxed income because it contains other exclusions.

Questions 70-77

70. Filing return. Indicate whether your parents have already completed, are going to complete, or will not file a tax return for 2003.

71. Type of return filed. Indicate which tax form your parents filed or will file for 2003.

72. Eligible to file a 1040A or 1040EZ. If your parents are eligible to file a 1040A or 1040EZ for 2003, they must indicate their eligibility to file one of these forms (even if they file a 2003 IRS Form 1040). Tax preparers often file a Form 1040 or an electronic 1040 on behalf of a tax filer, even though that person's income and tax filing circumstances would allow him or her to file a 1040A or 1040EZ.

In general, a person is eligible to file a 1040A or 1040EZ if he or she makes less than $50,000, does not itemize deductions, does not receive income from his or her own business or farm, and does not receive alimony. A person is not eligible to file a 1040A or a 1040 EZ form if he or she itemizes deductions, receives self-employment income or alimony, or is required to file Schedule D for capital gains. If your parents filed a 1040 only to claim Hope or Lifetime Learning credits and they would have otherwise been eligible to file a 1040A or 1040EZ, they should answer "Yes" to this question.

73. Adjusted Gross Income. Your parents must provide their Adjusted Gross Income (AGI) for 2003. AGI is found on IRS 1040 - line 34; 1040A - line 21; 1040EZ - line 4; or Telefile - line I. If your parents have not completed a 2003 tax form, they should calculate their AGI using the instructions for the applicable IRS form. They can get the instructions and the form at a public library or download them in Portable Document Format (PDF) from www.irs.gov/formspubs/index.html

Note that AGI includes more than just wages earned; for example, alimony, taxable portions of Social Security, and business income are also included.

74. Income tax. Enter the amount of 2003 income tax your parents paid from IRS 1040 - lines 54; 1040A - lines 36; 1040EZ - line 10; or Telefile - line K(2). Do not copy the amount of federal income tax withheld from a W-2 Form. If they did not pay any income tax for 2003, enter zero (0).

75. Exemptions. Enter your parents' exemptions for 2003. Exemptions are on IRS Form 1040 - line 6d or 1040A - line 6d. If your parents answered, "Yes" on 1040EZ - line 5, use EZ worksheet line F to determine the number of exemptions ($ 3,050 equals one exemption). If your parents answered "No" on line 5, they should enter "01" if single or "02" if married. On the Telefile, your parents should use line J(2) to determine the number of exemptions ($3,050 equals one exemption).

If your parent is divorced, separated, or widowed, but he or she has filed or will file a joint tax return for 2003, he or she should give only his or her portion of the exemptions.

76. Father's/stepfather's income earned. When the Department's processor calculates your parents' EFC, certain allowances are deducted from your parents' income for required and necessary expenses (such as taxes and basic living costs). Your parents' income earned from work will be used in the EFC calculation as an income factor when no tax form is filed.

77. Mother's/stepmother's income earned. Use the instructions from Question 76 ("Father's/stepfather's Income Earned") as the guide to answer this question, reporting your mother's income this time.

If your parents filed (or will file) a 2003 tax return, each should include only his or her share from IRS Form 1040 - lines 7 + 12 + 18; 1040A - line 7; 1040EZ - line 1; Telefile (or no return filed) - use the amount from the parent's W-2. Even if your parents filed a joint return, report each parent's earnings separately in Questions 76 and 77.

If your parents filed a tax return using other than an IRS form, such as a foreign or Puerto Rican tax form, they should report on the FAFSA the amounts (converted to U.S. dollars) from the lines of the non-IRS form that correspond most closely to those on the IRS forms.

If your parents did not file a tax return, they should report their earnings from work in 2003. They can find this information on their W-2 Form(s).