Financial Aid

Parents Separated, Filing Joint Tax Returns for FAFSA

Make sure your financial and familial circumstances are accurately reflected on the FAFSA.

Kathryn Knight Randolph

September 29, 2021

Parents Separated, Filing Joint Tax Returns for FAFSA
Get answers to your FAFSA application questions.
In your answer to How Does Income Tax Filing Status Affect Student Aid?, you address the question of which parent is responsible for completing the FAFSA. However, I'm very curious as to how the filing status of separated parents affects how the FAFSA is processed, once the primary/custodial parent has completed it. That is, is it more advantageous for separated parents to change their filing status to "married filing separately" so that the FAFSA only shows the income of the one parent who completed it? It seems like it would be in the parents' and student's best interest for the parent to have an income tax filing status that demonstrates a greater need. — Brad R. Marital status on the Free Application for Federal Student Aid (FAFSA) does not necessarily have to match the status on federal income tax returns. The most common reasons one might filed a federal income tax return as married but separated on the FAFSA include:
  1. The parents have an informal separation but not a legal separation or divorce. An informal separation looks like this: parents do not live together and have separate residences. In this case, they would file income tax returns as married but the FAFSA as separated.
  2. The parents were married on the last day of the tax year reported on the FAFSA but divorces or separated between then and the FAFSA application date. Under this circumstance, the parents would file income tax returns as married (either jointly or separately) but would file the FAFSA as divorced or separated.
Parents should be mindful of selecting the status that is accurate of their specific situation. Using the incorrect federal income tax filing status is a common error and one that ends in a FAFSA verification process. College financial aid officers will consider this as providing conflicting information. This will result in withholding financial aid until the proper status is filed on the proper forms. Providing the proper status may require every family member to file amended tax returns, a lengthy, frustrating process.
If the parents are separated, only the income and assets of the custodial parent are reported on the FAFSA, regardless of the tax filing status of the parents. If the custodial parent files a return with a status of married filing separately, identifying that parent’s adjusted gross income (AGI) from the income tax return is easy. On the other hand, if the parents filed a joint return, the custodial parent must calculate their income and taxes paid using information from the joint return and the relevant IRS W-2 and 1099 forms. The income calculation is based on the income from the custodial parent's W-2 forms, plus half of the income (or losses) from joint accounts and investments. There are two approaches to calculating the taxes paid attributable to the custodial parent from a joint return. The preferred method is to use the IRS Tax Table or Tax Rate Schedule to calculate the amount that would have been paid if a separate return had been filed, assuming the appropriate deduction and number of exemptions. The other method involves a proportional distribution of the taxes paid on the joint return based on the custodial parent's share of the joint AGI.
The bottom line is that the income should be the same regardless of whether a joint or separate return was filed. The taxes paid may differ slightly, depending on the method used to calculate the split, but this usually has a negligible impact on the expected family contribution as calculated by the FAFSA. The main benefit of filing a separate return, if that is an option, is that a separate return simplifies the income and tax calculations. It also avoids some headaches, such as what might occur if the FAFSA is selected for verification. But filing separate returns precludes the taxpayer from claiming certain education tax benefits, such as the Hope Scholarship tax credit, Lifetime Learning tax credit, Tuition and Fees Deduction, Student Loan Interest Deduction, and the exclusion from income of interest in connection with the education bond program (i.e., certain Series EE and I bonds).

Filing the FAFSA

The FAFSA becomes available on October 1 each year. The form uses tax information from the prior prior year to determine eligibility. So for the 2022 - 23 FAFSA, you will need to provide tax return information for 2020. In this case, there are circumstances that may affect ability to pay for college now that didn't exist in 2020. That's why it's vital to complete any supplemental financial aid forms from your state or college. These require a little extra work, but they can be pivotal to helping students secure financial aid to pay for college. The FAFSA application can be simplified through the use of the IRS Data Retrieval Tool as well. This tool can take the info from your tax return and auto-populate the fields with the correct information. It’s an easy, quick, and accurate way to complete the FAFSA. If you believe that your EFC, or Expected Family Contribution, does not accurately reflect your financial circumstances or provide enough aid, you can ask for a professional judgment. This process requires a financial aid officer at your school to get a detailed look at your financial information to determine if you are truly eligible for more aid. Although a favorable outcome can be hard to secure, the last few years have seen an increase in professional judgment requests and approvals because of implications from COVID-19. Do not be intimidated by the FAFSA and the complicated nature of your circumstances. There is plenty of help for those families needing guidance as they navigate the form. Ask guidance counselors or financial aid administrators for assistance, and be on the lookout for FAFSA completion events in your area.

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