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FAFSA Simplified needs test--Question

astrophysicsmomastrophysicsmom Posts: 4,326Registered User Senior Member
Well, I guess the "good" news is that we'll actually have a (legitimately) low EFC this year, so the FAFSA filing is much more than a formality this time around.

However, I have a question regarding the Simplified Needs Test. From the IRS site, it appears that we will QUALIFY to file 1040A, but it refers to the choice to itemize deductions and file 1040 instead.

The general descriptions from FAFSA say that if you "qualify" to file the 1040A, you meet the simplified needs test.
However, the finaid calculator says that you don't qualify "If itemized deductions from Schedule A were used"..... this seems like a discrepancy in definition to me???

FinAid | FinAid for Educators and FAAs | Simplified Needs Test Chart

Anyone have any insight or experience with this? It will become obvious when I actually fill out the FAFSA, but I've got to get a lot of interest/dividend statements before I can do that.
Post edited by astrophysicsmom on

Replies to: FAFSA Simplified needs test--Question

  • swimcatsmomswimcatsmom Posts: 15,029Registered User Senior Member
    If you itemize deductions you are not eligible to file a 1040a or 1040ez so are not eligible for the simplified needs test.

    So far as I can tell the only reasons where you can file a 1040 (other than just because you choose to with no tax benefit) is where you file a 1040 because of certain education tax benefits.

    From the FAFSA instructions for 2008-2009
    Completing the FAFSA 08-09/The Application Questions(32-47)
    34. Eligible to file a 1040A or 1040EZ. If you (and your spouse) are eligible to file a 1040A or 1040EZ for 2007, indicate your eligibility to file one of these forms (even if you file a 2007 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, are self-employed, receive 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. If you filed a 1040 and were not required to file a tax return, you should answer “Yes” to this question.

    It is an odd rule in some ways. My daughter's first year of school we could not file a 1040a because my husband had overpaid our State taxes in the previous tax year by a few dollars. As we had itemized that year the tax refund had to be reported on a 1040. That few dollars cost a lot of dollars in financial aid!! It just seemed so odd that everything else could be the same - the low income etc - but the type of return made us ineligible. I was stewing over it for long time ;). I'm over it now.
  • swimcatsmomswimcatsmom Posts: 15,029Registered User Senior Member
    it's a question of the wording, I guess, but I'm still not sure.

    The IRS 1040A pdf (page 11) talks about when you might choose to itemize deductions, even if you are not REQUIRED to. http://www.irs.gov/pub/irs-pdf/i1040a.pdf
    It looks like real estate taxes can be added to your standard deduction on 1040A, but it's our option whether we choose to itemize so that we can deduct mortgage interest and charitable contributions.

    The shaded box #34 above says indicate your eligibility to file 1040A "EVEN IF YOU FILE A 2007 IRS FORM 1040)". To me, that says the same thing that the IRS does. Assuming we have no special deductions that can only be reported on 1040A, we would be eligible, but we still might CHOOSE to itemize so that we can reduce our tax by the amount of our home mortgage interest. The calculator chart that I referenced above seems to say that IF YOU have a figure for itemized deductions, you don't "pass" the simplified method.

    I'm still confused. I'm assuming it's going to be moot....the amount of potential financial aid will probably trump the benefits of itemizing deductions, since we'll have 2 in college next fall. However, as our financial status changes, I could see this being an issue.
    "Eligible to file 1040A" and "Eligible to file 1040A, but CHOOSE to file 1040"....same thing or different in FAFSA's eyes?
    astro - the wording in the FAFSA instructions is quite specific - if you itemize you are not eligible for a 1040a or ez so you do not qualify for simplified needs.
    34. Eligible to file a 1040A or 1040EZ. If you (and your spouse) are eligible to file a 1040A or 1040EZ for 2007, indicate your eligibility to file one of these forms (even if you file a 2007 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, are self-employed, receive 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. If you filed a 1040 and were not required to file a tax return, you should answer “Yes” to this question.

    By choosing to itemize your deductions you no longer qualify for a 1040a or 1040ez because you cannot file itemize and file those forms. When FAFSA refers to you being eligible to file a 1040a/ez but choosing to file a 1040 it means that everything you reported on the 1040 could have been filed on a 1040a or ez. Itemized deductions cannot be filed on 1040ez or 1040a.
  • kelsmomkelsmom Posts: 12,570Super Moderator Senior Member
    As soon as you itemize, you have put yourself into the "have to file 1040" category. Sorry.

    The "good news" is that if your income is low due to unemployment/underemployment, you can qualify for simplified needs test without the 1040A/EZ. See this: http://www.ifap.ed.gov/eannouncements/attachments/121608FOTWWksht0910.pdf. Section 3, Q85.

    Now there are 3 ways to qualify for simplified needs (assuming AGI less than $50k):
    1) eligible to file 1040A/EZ
    2) someone in household received federal means tested benefits at any time in 2007 OR 2008 (new - the formula looks at past two years now, instead of just one)
    3) parent or independent student is dislocated worker.

    Hope this helps you.
  • kelsmomkelsmom Posts: 12,570Super Moderator Senior Member
  • thumper1thumper1 Posts: 37,592Registered User Senior Member
    I think the above posters were clear and are correct. If you choose to ITEMIZE...you have put yourself out of that exemption for being eligible for 1040A or 1040EZ. You can't have it both ways. If you are able to complete a 1040A then do NOT itemize and do that. If you itemize, you cannot use that exemption to qualify for the simplified needs test.
  • kelsmomkelsmom Posts: 12,570Super Moderator Senior Member
    http://ifap.ed.gov/presentations/attachments/071508NASFAAApplicationProUpdate20092010.pdf

    Page 8 of the pdf ... indicates that dislocated worker joins tax form & federal means tested benefits for simplified needs & auto 0.
  • sueinphillysueinphilly Posts: 4,207Registered User Senior Member
    I just realized that because my state allowed me to deduct the amount I put into my son's 529 plan last year, I got a state tax refund of 279 and that I need to claim that as income this year (I think I will get a 1099-G) thereby messing with my plan to file a 1040a and NOT itemize and have an AGI of under 50K and qualify for the simplified needs test.

    I'm calling my tax office tomorrow. I am going to ask them if I can file an amended return and pay the darn tax ($368) on the the 12000 that I put into the 529. Qualifying for the simplified needs test will lower my EFC by 3-4K. Seems like a no brainer, hope I can do. Ready to write a check NOW. How silly that a $279 refund because of a state deduction could mess up my plans. Thanks for letting me vent my frustration.

    I do believe that if you don't itemize, even if you Could, you can file a 1040A. At least that's how I interpret the 'rule'
  • NikkiiLNikkiiL Posts: 1,048Registered User Senior Member
    Basically, your last assumption is correct...they are different in FAFSA's eyes, like most other IRS/FAFSA regulations. It would be nice to see a coming together of some of their laws, but its doubtful. Best advice would be to complete your taxes both ways and plug the information into the EFC calculator to see what would be your best overall picture. Even if you meet the qualifications to itemize, except in a few rare circumstances, itemization isn't required by the IRS. Always read the IRS publications or consult a tax expert to make sure you are not required to itemize.
  • astrophysicsmomastrophysicsmom Posts: 4,326Registered User Senior Member
    Thanks, all!!! I get it (finally)!!!
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