Does foreign income exclusion affect EFC?

[Arutha]

<p>Our AGI is about $47,000 and one of the parents is a dislocated worker. We are claiming about $5000 as foreign income exclusion. Do we still qualify for simplified needs test? The NPC seems to add the foreign income exclusion back into the calculation and is ignoring the dislocated worker info. Is that correct?</p>

[emeraldkity4]

<p>From what I am reading on other threads the NPC is wildly incorrect anyway.</p>

[thumper1]

<p>I’m really not positive but I believe that foreign exclusion is for tax purposes only. It is still income, and I believe it WOULD be added back in as income for you. Hopefully someone more versed with this will respond…and correct me if I’m wrong.</p>

<p>We have expat relatives. They have a foreign exclusion for TAX purposes in the U.S. (don’t have to pay taxes on a certain amount) but they still listed that as income on their finaid forms. Maybe they were wrong too!</p>

[Arutha]

<p>

From what I am reading on other threads the NPC is wildly incorrect anyway.

OK. So, does that mean we are still good with simplified needs test?</p>

[emeraldkity4]

<p>You need to add the income back in.

The foreign income exclusion was removed from the definition of untaxed income by the College Cost Reduction and Access Act of 2007.

</p>

<p>[Last</a> of 7 Parts: Answers on the Fafsa and Financial Aid - NYTimes.com](<a href=“http://thechoice.blogs.nytimes.com/2010/01/24/fafsaq-and-a-part-7/]Last”>Last of 7 Parts: Answers on the Fafsa and Financial Aid - The New York Times)</p>

[thumper1]

<p>I believe that for the simplified needs test you have to have an AGI of $50,000 or less. If your income is higher than that, I don’t think you qualify for it. The test is two fold…income threshold AND another factor such as dislocated worker, means tested benefit etc.</p>

<p>But I am NOT an expert when it comes to foreign income OR the simplified needs test. Hopefully others will comment.</p>

[Arutha]

<p>I do qualify for simplified needs test because our AGI is below $50,000 and one parent is a dislocated worker. I understand that part. I also understand I have to add foreign exclusion income in FAFSA. My question is, when I add foreign income exclusion, my income is over the limit of $50,000. Do I still qualify for simplified needs test? Or at that point does it trigger inclusion of assets also in the formula?</p>

[Erin_s_Dad]

<p>If adding the income back in means your income is over $50K then you don’t pass 1/2 of the Simplified Needs Test.</p>

[Arutha]

<p>

If adding the income back in means your income is over $50K then you don’t pass 1/2 of the Simplified Needs Test.

</p>

<p>Is that true? Even if AGI is still below $50,000?</p>

[Erin_s_Dad]

<p>[FinAid</a> | FinAid for Educators and FAAs | Simplified Needs Test Chart](<a href=“http://www.finaid.org/educators/needs.phtml]FinAid”>http://www.finaid.org/educators/needs.phtml)

Thus to determine whether the applicant is eligible for the simplified needs test, we need to determine whether a tax filer was required to file a Form 1040 instead of a Form 1040A or 1040EZ. A tax filer was required to file a Form 1040 if line 42, Taxable Income, is greater than $100,000, or if amounts other than zero appear on the following lines:…
22 Only if using Foreign Income Exclusion (IRS Form 2555 or 2555EZ)

</p>

[kelsmom]

<p>The foreign income exclusion was removed from the definition of untaxed income by the College Cost Reduction and Access Act of 2007. </p>

<hr>

<p>What this means is that the foreign income exclusion is NOT added back in. It is not taxable income, and it is not untaxed income. It is not reported on FAFSA. That is a fact, unless it changed for 2012-13 (I don’t know the newest rules).</p>

<p>Remember … all the simplified needs formula does is ignore assets.</p>

[Arutha]

<p>

The foreign income exclusion was removed from the definition of untaxed income by the College Cost Reduction and Access Act of 2007.</p>

<hr>

<p>What this means is that the foreign income exclusion is NOT added back in. It is not taxable income, and it is not untaxed income. It is not reported on FAFSA. That is a fact, unless it changed for 2012-13 (I don’t know the newest rules).</p>

<p>Remember … all the simplified needs formula does is ignore assets.

</p>

<p>Thank you kelsmom. I looked at the draft version of 2012-13 FAFSA and you are right, foreign income exclusion is not reported on FAFSA.</p>

[kayf]

<p>Kels, I do not understand. Are you saying that the foreign excluded income is NOT taxalbe income and is not untaxed income? Is it just disregarded?</p>

[emeraldkity4]

<p>On several school websites there are reminders to convert foreign currency into dollars for the FAFSA so it must be included somewhere

International Parents
If your parents reside outside the United States, they still must claim their income earned in a foreign country. Their income is treated the same as income earned in the United States. You will need to convert all figures to U.S. dollars using the exchange rate in effect on the day you complete the FAFSA.
If income tax is paid to the country in which the parents reside, the dollar amount comparable to the U.S. Adjusted Gross Income, and the dollar amounts of each parent’s earnings from work are reported in the respective questions. Any taxes paid to the government of that country on their income should be reported as U.S. income tax paid. If the government of the foreign country does not tax the income, the income earned from each parent’s job needs to be reported as earnings from work. Any other income needs to be reported as Untaxed Income.

</p>

<p>

Foreign income</p>

<p>Income earned in a foreign country is treated the same as income earned in the U.S. Convert all figures to U.S. dollars, using the exchange rate in effect on the day you complete the FAFSA. You can find information on current exchange rates at <a href=“http://www.federalreserve.gov/releases/h10/update[/url]”>http://www.federalreserve.gov/releases/h10/update&lt;/a&gt;.&lt;/p&gt;

<p>Include the value of any taxes paid to the foreign government in the “U.S. income tax paid” line item. If income earned in the foreign country was not taxed by the central government of that country and was not subject to the foreign income exclusion based on filing an IRS Form 2555 or 2555EZ, the income must be reported as untaxed income in Question 44(i).</p>

<p>In many cases, if you file a return with the IRS for a year in which foreign income was earned, a portion of the foreign income can be excluded on IRS Form 2555 for U.S. tax purposes. The figure reported on line 45 of Form 2555 (or line 18 of Form 2555EZ) should not be reported in Question 45(i).

</p>

[Arutha]

<p>

If income earned in the foreign country was not taxed by the central government of that country and was not subject to the foreign income exclusion based on filing an IRS Form 2555 or 2555EZ, the income must be reported as untaxed income in Question 44(i).

</p>

<p>That makes it clear. Anything above the exclusion limit only be reported.</p>

[kelsmom]

<p>The Foreign Income exclusion refers only to income earned by a person filing a U.S. tax return that is allowed to be excluded per IRS tax regulations. Income earned in a foreign country that is not affected by the above is reported. These are not the same thing. I don’t know why this exclusion is allowed - someone once explained it to me, but it didn’t make sense to me so I promptly forgot the reason. But yes, if income is earned but allowed per the U.S. tax code to be excluded on a U.S. tax return (yes, the person must have filed the return in order have “excluded” it - just not filing a return when you have foreign income does not qualify), then it is not reported. Again, I don’t know why this is … maybe someone in Congress did it for a buddy, and no one realized what was going on! … but it IS the way it is.</p>