Can the FAFSA be Completed with Information from the Previous Year's Tax Returns?
January 07, 2013
My daughter got accepted to her first-choice school, a private university, as an early-decision candidate. The school won’t be able to tell us the amount of financial aid she will be offered until March. I am eager to file the FAFSA and CSS Financial Aid PROFILE forms as soon as possible, as I’ve heard this helps maximize the amount of aid a student can be considered for. (The reasoning is that the longer you wait, the less available aid there will be.) The FAFSA is available online starting today, January 1. I already created an account and have my pin. Does it make sense for me to begin filling it out using my tax info from the year before (and then make any adjustments later), or should I wait until I receive this year’s W-2 forms? I work at a nonprofit and make a low salary, which is strengthened by child support. I don’t expect a radical difference between last year’s and this year’s income tax returns. — Gwen I.
Congratulations on your daughter’s accomplishments. She must be very excited to have been accepted by her first-choice college.
Do not wait to file the financial aid application forms. Some families make the mistake of waiting until they receive W-2 forms, prepare their federal income tax returns or are admitted to apply for financial aid. But by then they may have waited too long to receive some forms of financial aid.
File the Free Application for Federal Student Aid (FAFSA) as soon as possible after January 1 of the student’s senior year in high school and each subsequent year. The FAFSA is the gateway to financial aid from the federal and state governments and most colleges and universities.
While the federal government allows students to qualify for aid even as late as the end of the academic year, some states have much earlier deadlines for students who wish to qualify for state grants. Two states, Oregon and Connecticut, have deadlines in February and about a dozen states have deadlines in March. Six states award state grants on a first-come, first-served basis until the money runs out. Some colleges have two deadlines, with less money available to students who do not apply by the first “priority” deadline. Private scholarships that consider financial need may require applicants to file the FAFSA early.
But applicants might not have all the information they need to file the FAFSA by these early deadlines.
Officially, employers must mail IRS Form W-2 and businesses must mail IRS Form 1099 by January 31. But some brokerages don’t mail 1099s until mid-February, especially if the brokerage account includes mutual funds, foreign stocks and real estate investment trusts. Practically speaking, most taxpayers won’t receive all of their forms until mid-February and some not until the end of February. This makes it difficult for families to prepare their federal income tax returns before filing the FAFSA.
Instead, it is ok to file the FAFSA based on estimated income and tax information. There will be an opportunity to correct any errors and update the information later. In fact, the FAFSA form asks whether the applicant (and parents) have already filed or will file their federal income tax returns so that the US Department of Education can email reminders to update the FAFSA after the April 15 deadline for filing a federal income tax return.
To estimate income for the previous year, start with the last pay stub of the year and the year-end bank and brokerage account statements. Also use any W-2 and 1099 forms that have already been received. Compare this information with the federal income tax returns you filed last year to make sure to include all important types of income, including interest and dividend income, capital gains, self-employment income and alimony. (The FAFSA refers to specific line numbers of the current year’s federal income tax returns. These line numbers may have changed from the previous year’s federal income tax return, so be careful when comparing income information with the previous year’s federal income tax returns.)
Try to estimate income as accurately as possible, since every $10,000 difference in income can lead to about a $3,000 difference in the Expected Family Contribution (EFC).
After the federal income tax returns have been filed, update the FAFSA with the actual figures from the income tax returns. It is not necessary to wait until the US Department of Education emails a reminder to update the FAFSA. If possible, use the IRS Data Retrieval Tool to update the information, since this will save time and reduce the likelihood the FAFSA will be selected for verification.
Need money to pay for college?
Every semester, Fastweb helps thousands of students pay for school by matching them to scholarships, grants and awards for which they actually qualify. Sign up today to get started. You'll find scholarships like the $2,000 "No Essay" Scholarship from Niche, a scholarship open to all U.S. students and those planning on enrolling within 12 months, and high value scholarships like Opinion Outpost $10,000 Quarterly Prize.