Instructions

Purpose: All students (dependent and independent) must provide their financial information for these questions. The EFC calculation, determined by a formula specified by law, uses a family's income, assets, household size, and certain expenses to determine whether the family has discretionary income. If the family has discretionary income, a portion, and only a portion, of that income is included in the EFC as available for the student's educational costs.

How to Complete the Income Tax Section

It is best if you (and your spouse) fill out your 2004 income tax return(s) before filling out this application. However, if you have not completed your income tax return(s), you should calculate your adjusted gross income (AGI) and taxes paid using the applicable IRS instructions. You can get the instructions and the appropriate tax 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) you (and your spouse) actually file, the financial information must agree. If there are differences, you should correct the information on the Web or send it back to the FAFSA processor. This could mean a delay in getting student financial aid.

Even if you (and your spouse) are not required to file a 2004 income tax return, you will need to calculate your earnings for the year. 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 you, enter 0 (zero). Do not leave any of these questions blank.

For the 2005-06 FAFSA, the "base year" for completing income tax questions is 2004. Income tax questions give 2004 Internal Revenue Service (IRS) tax form line references.

If you are married at the time you submit the FAFSA, even if you were not married in 2004, both your and your spouse's income, assets, and exemptions must be reported. If you and your spouse filed (or will file) separate tax returns for 2004, be sure to include the combined information from both returns on the FAFSA.

If you are single, divorced, separated, or widowed, you must answer the questions for yourself only and ignore the references on the FAFSA to "spouse."

If you are divorced, separated, or widowed but filed (or will file) a joint tax return for 2004, you must give only your portion of the exemptions, income, and taxes paid for the income and asset questions.

Information from one of the following 2004 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 the same 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. You can find information on current exchange rates at www.federalreserve.gov/releases/h10/update.

Include the value of any taxes paid to the foreign government in the "U.S. income tax paid" line item. If income earned in the foreign country was not taxed by the central government of that country, the income must be reported as untaxed income on Worksheet B of the FAFSA and totaled in Question 41.

In many cases, if you 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 exclusion" 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 the Form 2555 must not be reported as untaxed income because it contains other exclusions.

Questions

32. Filing return. Indicate whether you have already completed, are going to complete, or will not file a tax return for 2004.

33. Type of return filed. Indicate which tax form you filed or will file for 2004.

34. Eligible to file a 1040A or 1040EZ. If you (and your spouse) are eligible to file a 1040A or 1040EZ for 2004, indicate your eligibility to file one of these forms (even if you file a 2004 IRS Form 1040). For instance, 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, you are eligible to file a 1040A or 1040EZ if you make less than $100,000, do not itemize deductions, do not receive income from your own business or farm, and do not receive alimony. You are not eligible to file a 1040A or a 1040EZ form if you itemize deductions, receive self-employment income or alimony, or are required to file Schedule D for capital gains. If you filed a 1040 only to claim Hope or Lifetime Learning credits and you would have otherwise been eligible to file a 1040A or 1040EZ, you should answer "Yes" to this question.

35. Adjusted Gross Income. Provide your (and your spouse's) adjusted gross income (AGI) for 2004. AGI is found on IRS Form 1040 - line 36; 1040A — line 21; 1040EZ — line 4; or TeleFile — line I. If you have not completed a 2004 tax form, you should calculate your AGI using the instructions for IRS Form 1040. You 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.

36. Income tax. Enter the amount of 2004 income tax you (and your spouse) paid from IRS Form 1040 — line 56; 1040A — line 36; 1040 EZ — line 10; or TeleFile — line K(2). Do not copy the amount of federal income tax withheld from a W-2 Form. Do not include any FICA, self-employment, or other taxes. If you did not pay any income tax for 2004, enter zero (0).

37. Exemptions. Enter your (and your spouse's) exemptions for 2004. Exemptions are on IRS Form 1040 — line 6d or 1040A — line 6d. If you answered, "Yes" on 1040EZ — line 5, use EZ worksheet line F to determine the number of exemptions ($ 3,100 equals one exemption). If you answered "No" on line 5, you should enter "01" if single or "02" if married. On the TeleFile, use line J(2) to determine the number of exemptions ($ 3,100 equals one exemption).

If you are divorced, separated, or widowed, and have filed or will file a joint tax return for 2004, you should give only your portion of the exemptions.

38. Student's income earned from working. When the Department's processor calculates your EFC, certain allowances are deducted from your (and your spouse's) income for necessary expenses (such as taxes and basic living costs). The income earned from work will be used in the EFC calculation as an income factor when no tax form is filed.

39. Spouse's income earned from working. Use the instructions from #38, "Student's Income Earned from working" as the guide to answer this question for your spouse's income.

If you filed (or will file) a tax return, you should include your share only from IRS form 1040 - lines 7 + 12 + 18; 1040A - line 7; 1040EZ - line 1; TeleFile — use your W-2. Even if you filed a joint return, you must report your and your spouse's earnings separately.

If you filed a tax return using other than an IRS form, such as a foreign or Puerto Rican tax form, you 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 you did not file a tax return, you should report your earnings from work in 2004. You can find this information on your W-2 Form(s).