Completing the  Free Application for Federal Student Aid (FAFSA) means that you need to report or give access to income information which often feels daunting.  To feel more comfortable sharing your income information with the federal government, then understand how they assess both parent and student income information on the FAFSA. 

Whose Income Data is Reported

Most often students need to provide both their income information as well as their parent(s).   

However if an undergraduate student is over 24 years old, is an orphan or ward of the court, is married, has a dependent of their own, is a veteran or serving activity or meets a few other criteria, then the federal government considers them an independent student when completing the FAFSA.  This means that only only the student income will be requested on the FAFSA. 

Which Income is Reported

Parent income drives most expected family contribution (EFC) calculations but student income information is still asked.  The FAFSA will ask everything from what type of tax form the student and parent(s) completed to your the untaxed income on the W2 form and other sources. 

The good news is that with the IRS Data Retrieval Tool (IRS DRT), it is easy to provide both the student’s and parent(s)’ income tax information to accurately complete the FAFSA.   For most eligibility just depends on your prior completion of the applicable taxes at least 3 week electronically or 11 weeks if via mail for the year in which you are applying.  However, the IRS DRT does not work if you have one of the following scenarios:

• The student or parent files their tax form(s) as “Married Filing Separately.”
• The student or parent files their tax form(s) as “Head of Household.”
• The parents’ marital status on the FAFSA is "Unmarried and both legal parents living together."
• The student or parent files a Puerto Rican or foreign tax return or an IRS Form 1040-NR or 1040NR-EZ.

Even if you use the IRS DRT, you may ask the student or parent to provide untaxed income or benefits, such as workers compensation, Black Lung Benefits, untaxed portions of Railroad Retirement Benefits, foreign income not taxed by any government, disability benefits and health savings accounts.

If you have to enter your tax information, then the FAFSA will as for:



• Tax form completed
• Adjusted gross income from taxes
• Income taxes paid
• Total earnings

The good news is that the FAFSA will help you out by letting you know the exact line or calculation of various lines from the tax return that you used.

View on Parent Income

Not every dollar of a parent(s) income is seen as being available to pay for college.  The FAFSA uses an income protection allowance based on the number of people in your household and the number of people in college.  In the 2021-22 academic year, the income protection allowance for  dependent students in households with 4 people and only 1 in college, the allowance is $29,890.  In contrast, if the same household had 2 household members in college, then the income protection allowance is $26,570. 

The FAFSA also excludes a state and other tax allowance based on your income level and state of residence.  This allowance is calculated as a percentage of the total income reported for the parents.  For those whose earnings are less than $14,999 in 2019, the amounts may be as low as 2% in locations like Alaska or Puerto Rico or as high as 10% in New York.  For those whose earnings are more than $15,000, the amounts may be as low as 1% in locations like North Dakota or South Dakota or as high as 8% in California, Connecticut, and New Jersey or 9%  in New York.

In addition to the income protection and state and other tax allowances, the FAFSA has an allowance for social security taxes based on income level.  For those making up to $132,900, the social security tax allowance is 7.65%.  If you make more than that, the allowance gets a little tricky.  For those earning $132,901 to $200,000, the social security tax allowance is $10,166.85 + 1.45% of the amount over $132,900.  Similarly for those earning over $200,001, the social security tax allowance is $11,139.80 + 2.35% of the amount over $200,000. 

Finally, the FAFSA calculates an employment expense allowance for some parents.  If only one parent works in a 2-parent household, then there is no allowance for employment expenses.  However, if both parents work in a 2-parent household, an employment expense allowance is calculated as 35% of the earned income of whichever parent earns less up to $4,000.  If there is only one parent in the household, then the allowance is calculated based on 35% of their earned income, or $4,000, whichever is less.

While a parent income contribution from discretionary income is on a sliding scale, from 22 to 47% depending on parent income.  In fact, it can even be a negative number if the parent earned less than $3,409. 

Pro Tip:  Don’t forget to exclude your child support paid from your income.  If the parent (or independent student) is paid child support because of a divorce, separation, or legal requirement, the amount may be excluded from the income.

View on Student Income

Like parents, an income protection allowance is used by the FAFSA for students.  In the 2021-22 academic year, the dependent student income protection allowance is $6,970. Dependent students also get the state and other income tax allowance and the social security tax allowance.  If the parent(s) had a negative adjusted available income, then this amount can be subtracted from the dependent  student’s income as an allowance.  After all these allowances are subtracted to calculate the discretionary income, the dependent student income contribution is calculated at a flat 50%.



Now if a student is independent based on the FAFSA’s definition, then the view of the student’s income will be dependent on their total household to determine the formula. Independent students get the following allowances:

• Income protection allowance
• State and other income tax allowance
• Social security tax allowance
• Employment expense allowance

However the calculation on the income protection allowance will vary. For independent students without dependents other than a spouse, the FAFSA will use the following income protection allowance:

• $10,840 for single, divorced, widowed or married with a spouse who is enrolled at least half time
• $17,380 for married with a spouse who is not enrolled at least half time

For independent students with dependents other than a spouse, the income protection allowance will be calculated by the number of people in your household and the number of people in college. In the 2021-22 academic year, the income protection allowance for  independent students in households with 4 people and only 1 in college, the allowance is $42,200.

There is a big difference in the independent students with or without dependents other than a spouse have their student income contribution calculated.  For independent students without dependents other than a spouse, the student income contribution calculation is just like the dependent students - a flat 50% of discretionary income. For independent students with dependents other than a spouse, the student income contribution calculation is just like parent income contribution on a sliding scale, from 22 to 47% depending on student and spouse (if applicable) income. 

Pro Tip:  Don’t forget to exclude your Federal Work-Study and need-based employment portions from your income.  You heard it right.  Whichever portion of a student’s income earned from Federal Work-Study, need-based employment or Cooperative Education Program offered by a college may be excluded from the reported adjusted gross income.

Qualifying for Simplified Needs Test and Automatic Zero EFC

The federal government made several regulations to help with eligibility for the lowest income families.  They created the Simplified Needs Test to eliminate all the asset questions for qualifying families and Automatic Zero EFC to help other families qualify for the maximum Federal Pell Grant. 

To qualify for the Simplified Needs Test as a dependent student, the following criteria must be met:



• Parents income is less than $50,000
• Parents completed or qualified to complete an IRS 1040A or IRS Form 1040EZ.
• Anyone included in the parents’ household size received benefits of the following benefits in 2019 0r 2020: 
• Medicaid Program
• Supplemental Security Income (SSI) Program
• Supplemental Nutrition Assistance Program (SNAP)
• Free and Reduced Price School Lunch Program
• Temporary Assistance for Needy Families (TANF) Program1
• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) 
• Parent is dislocated worker status because of an involuntary job loss or layoff and any of the following criteria:
• Parent is unlikely to return to a previous industry or occupation
• The job loss or layoff is due to a business or plant location closure or substantial layoff
• Parent is the spouse of a member of the U.S. Armed Forces and the job loss or underemployment is due to relocation of the Servicemember

To qualify for the Simplified Needs Test as an independent student, the following criteria must be met:

• Student and spouse (if applicable) income is less than $50,000
• Student and spouse (if applicable) completed or qualified to complete an IRS 1040A or IRS Form 1040EZ
• Anyone included in the student’s household size received benefits of the following benefits in 2019 0r 2020: 
• Medicaid Program
• Supplemental Security Income (SSI) Program
• Supplemental Nutrition Assistance Program (SNAP)
• Free and Reduced Price School Lunch Program
• Temporary Assistance for Needy Families (TANF) Program1
• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) 
• Student or spouse (if applicable) is dislocated worker status because of an involuntary job loss or layoff and any of the following criteria:
• Student or spouse (if applicable) is unlikely to return to a previous industry or occupation
• The job loss or layoff is due to a business or plant location closure or substantial layoff
• Student or spouse (if applicable) is the spouse of a member of the U.S. Armed Forces and the job loss or underemployment is due to relocation of the Servicemember

To qualify for the Automatic Zero EFC, the parent income of dependent students must be less than $27,001 and they must satisfy the Simplified Needs Test criteria as well. For independent students with dependents other than a spouse, the income of the student and their spouse (if applicable) must be less than $27,001 and they must satisfy the Simplified Needs Test criteria.

Unfortunately, independent students without dependents other than a spouse are not eligible for an Automatic Zero EFC.