No. FAFSA (and Profile, last time I saw it) asks for Adjusted Gross Income from the federal tax return, which is a general measure of W-2 box 1 income (after employee pre-tax contributions have been subtracted from gross income) plus assorted additions and minus assorted deductions (if applicable). Using your example above, option 2 is how parent income and a 401(k) pre-tax contribution would be reported on FAFSA (and presumably Profile).