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Will Filing Income Tax Returns as Married Filing Separately Affect Eligibility for Student Financial Aid?

Mark Kantrowitz

September 19, 2011

My husband and I separated last year and are living at separate addresses. We have not filed for divorce yet or a formal separation. We are considering filing our taxes as married filing separately. I am currently a student at an online university and will need to fill out my FAFSA soon. Although my soon to be ex-husband makes about $75,000 a year, I work a low-income job and fully support myself. I am wondering how married filing separately will affect my FAFSA application this year. Do I still have to claim his income since technically we are still married? — C. C.

An informal separation is treated the same as a legal separation or divorce on the FAFSA. Even though the couple is still married, the income and assets of the ex-spouse are not reported on the FAFSA. The ex-spouse must have left the household and be maintaining a separate residence. If they are still living together, they are not considered to have an informal separation.

Living in different rooms or floors in the same house does not count as an informal separation. Likewise, maintaining a separate household in a different state for employment purposes does not count as an informal separation. The separation must be for an indefinite period, not a temporary absence from the home.

College financial aid administrators may ask for proof of the separation, such as copies of utility bills for separate residences.

A couple with an informal separation may file their federal income tax returns as either married filing jointly or married filing separately. This is in contrast with a couple with a legal separation, who cannot file their federal income tax returns with a married status.

In certain circumstances one or both of them may be able to file as head of household, if they are considered unmarried under IRS rules, a qualifying person lived with them for more than half the year and they paid for more than half the cost of keeping up a home. In most cases, however, a couple that is still married will not qualify for head of household status. (Head of household filing status is so error-prone that subregulatory guidance from the US Department of Education requires college financial aid administrators to question whether it is the correct filing status.)

If the couple files a joint return, filing the FAFSA becomes more difficult because the income and assets of the ex-spouse must be omitted. This requires analyzing the income tax return to split the income (often based on W2 statements or pay stubs, with an even split of unearned income) and taxes. Splitting the taxes may require using a tax table to calculate the individual taxes paid or, alternately, dividing the taxes proportionately. Filing a joint return will often trigger verification because the income and tax figures on the FAFSA will not match the corresponding figures on the federal income tax return.

It is often much simpler if the couple files separate income tax returns. However, filing separate returns may prevent a couple from claiming certain education tax benefits, such as the Hope Scholarship tax credit, Lifetime Learning tax credit, Tuition and Fees Deduction and the Student Loan Interest Deduction.

My fiance and I live together and usually file a joint income tax return. He doesn’t make a lot of money, but because it’s a joint tax return, my fiance got rejected for financial aid because of my income. My question to you is, we’re thinking of filing our tax return as married filing separately. Would you think that would help it approve his financial aid? — Judy N.

The word “fiance” means engaged to be married. An unmarried couple cannot file income tax returns as though they are married unless they live in one of the 16 common law marriage states, hold themselves out to be married and meet the state’s other criteria to have a common law marriage. (In other words, a common law marriage means that the couple is married and the significant other is a spouse, not a fiance.)

Just because an unmarried couple lives together doesn’t mean they can file income tax returns as though they were married.

Likewise, a student who is engaged but not yet married is not treated as married on the FAFSA either.

Falsely filing federal income tax returns with a marital status is fraud.

If an unmarried couple incorrectly filed their income tax returns as married, they will need to file amended income tax returns to correct the error. They will also need to correct the status on the FAFSA.

If a couple is married, it does not matter whether they file income tax returns as married filing jointly or married filing separately. In both cases the income and assets of both spouses must be reported on the FAFSA.


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