If you have a college student or high-school senior, you need to be aware of some big changes to the rules for filing a Free Application for Federal Student Aid (FAFSA). Your 2015 income will have double the impact on college aid packages since President Obama signed an Executive Order on September 14, 2015, effectively changing the method of using prior year income to a new prior-prior year method.
This new method will make it easier for most families to fill out the FAFSA and get the appropriate information to their choice colleges so that financial aid packages can be determined.
Previously, families and schools had to use estimated tax information to complete the FAFSA in January and then provide finalized information after filing their finalized tax forms. This sometimes resulted in unanticipated changes to the financial aid package offered. The former method created a lot of pressure on parents to provide accurate estimates and get their taxes done early (not always easy for those who own their own businesses or have complicated tax situations).
With the new method, the FAFSA will rely on older tax returns (prior-prior year) which will enable parents to use finalized figures for more accurate information. The IRS federal data retrieval tool can also be accessed to import tax information directly to the FAFSA, making it much easier to complete and submit.
Another important development is that the date when families can file the FAFSA has been changed from Jan. 1 back to Oct. 1, allowing families to potentially get award packages much earlier in the college selection process. This will apply for the 2017-2018 school year, so families can fill out that FAFSA beginning Oct. 1, 2016.
Why is the 2015 tax year so important? It is the transition year, and so it will be counted twice in determining college financial aid packages. Parents of students filling out the FAFSA for the 2016 school year will still be using their 2015 tax figures. Those same figures will be used again in filling out the FAFSA for the 2017 school year. For the 2018 school year, parents will use their 2016 tax figures to complete the FAFSA. This makes it especially important to engage in solid tax planning for 2015 if you have current or soon-to-be college students.
It’s not too late to make changes and elections for 2015 which may help you to reduce your taxable income. Please contact us to discuss your year-end tax planning and how this change may affect youTags: College, FAFSA, Financial Aid