January 10, 2011
Department of Education to make correction to 2011-12 FAFSA
The National Association of Student Financial Aid Administrators (NASFAA) announced today that there is an important correction to be made to the 2011-12 Free Application for Federal Financial Aid (FAFSA). Tax filers for the 2009 tax year didn’t have to report the first $2,400 of unemployment benefits received as taxable income on their returns. For the 2011-12 FAFSA, that initial $2,400 still had to be reported as taxable income but there were no instructions to do so on the form. If you or your parents received unemployment benefits during the 2009 tax year, make sure you take notice of the correction when completing and submitting your FAFSA form!
NASFAA.org - In the 2009 tax year, tax filers did not have to report the first $2,400 of unemployment benefits received as taxable income on their tax returns. However, the untaxed $2,400 of unemployment benefits still had to be reported as untaxed income on the 2010-11 FAFSA. There were no instructions related to this on the Free Application for Federal Student Aid (FAFSA), so many families did not report the $2,400 as untaxed income and financial aid administrators subsequently submitted many FAFSA corrections to include it.
On the 2011-12 FAFSA, ED expanded the instructions to clarify what untaxed income should be included. Questions 44i and 92i on the 2011-12 FAFSA instruct students and parents to include “the first $2,400 of unemployment benefits received” as untaxed income.
However, the tax provision allowing the first $2,400 of unemployment benefits received to be untaxed was not extended through 2010. Now, all unemployment benefits are taxable and therefore included in the tax filer’s Adjusted Gross Income (AGI). If a student and/or parent were to follow the current 2011-12 FAFSA instructions, then $2,400 of unemployment benefits would be double counted in the EFC formula— both as untaxed income and as part of the AGI.
ED is in the process of removing the wording that instructs students and parents to include the first $2,400 of unemployment benefits as untaxed income. The PDF FAFSA will be corrected and the paper FAFSA will have the correct information when it is printed. FAFSA on the Web (FOTW) and the FOTW worksheet are correct.