If you’re planning to attend school, you probably know how high college costs can be. Getting federal financial aid can go a long way toward helping you cover costs.
But what if you’re married? Could your marital status impact your ability to get the financial aid you need? Actually, yes. When you fill out your Free Application for Federal Student Aid (FAFSA), how you file your tax return can make a difference.
Here‘s what you need to know about how your income tax return can impact your financial aid when you fill out your FAFSA.
FAFSA Financial Information and Student Aid
When you fill out your FAFSA, you have to include information about your household finances. If you’re married, your spouse’s income and assets will be included in the calculations. This information is sent to the financial aid offices at the schools you want to attend. At that point, financial aid administrators will use the information to determine whether you’re eligible for grants and offer you federal student loans.
If your spouse makes a lot of money, that can prevent you from getting as much financial aid as you think you might need. You might also lose out on some tax benefits, such as a tax deduction for student loan interest.
Some students wonder if it might make sense to use the married filing separately status instead of filing a joint tax return. In some cases, filing separate tax returns can make a difference. But that works only if you are actually separated.
The FAFSA, Student Financial Aid and Tax Filing Status
First of all, it’s important to understand your correct filing status. If you’re married, you can choose to file a joint return or use the married filing separately status. That applies to an informal separation as well as when you live together. If you are divorced or have a formal separation, you can’t use the married designation at all when filing taxes.
You also need to make sure you meet the head of household definition if you have dependents and want to use that filing status.
Now, here’s where it can get tricky for taxpayers filling out the FAFSA. The married filing separately status won’t help you if you’re still living with your spouse. You can file your tax return separately, but your spouse’s assets are still considered part of the FAFSA question of your eligibility for certain types of aid.
Now, if you are informally separated, planning to divorce (or get a formal separation) and you don’t live together, using the married filing separately status can help you as you fill out the FAFSA.
How Being Separated Impacts Your Financial Aid
Qualifying for certain types of aid, such as a Pell Grant or asubsidized federal student loan, requires that you meet the definition of financial need.
When you’re separated from your spouse, you can exempt their assets from your FAFSA, meaning you won’t have to report them. That can make you eligible for certain types of aid that you wouldn’t be able to access based on your adjusted gross income with your soon-to-be ex.
However, you have to be truly separated. That means you need to live in different households. A temporary absence, such as your spouse living in a different state for work, is not enough.
In many cases, a financial aid administrator will need to see proof that you are separated, such as different addresses and separate utility bills.
At this point, filing a separate return can make a lot of sense. If you don’t file a separate federal income tax return, you will have to go through your joint return and identify which portion of the income and assets are your spouse’s and which are yours. That can be complicated and time-consuming.
If you’re separated, filing separately can make the process easier. Talk to a tax preparer for more information if you’re concerned about how to proceed. They can help you with a worksheet or use other methods to determine your tax liability.
Finally, you will need to determine the custodial parent of any children you have. If you’re trying to get financial aid, being able to claim dependents can help.
What Tax Benefits Aren’t Included When Married Filing Separately?
As you go through the process of determining how to get federalfinancial aidwhile separated, you also need to consider which tax benefits you’ll miss out on. For example, some tax credits might not be available to you. You might not be able to claim the student loan interest deduction or deduct your tuition expenses if you’re married and filing separately.
Instead, if you have a legal separation or you have completed your divorce proceedings, you might be able to claim the head of household status if you have dependents. That can make you eligible for some tax benefits based on your income alone, not your ex-spouse’s income and assets.
Consider consulting with a knowledgeable professional about whether it makes sense to end the marriage before filing taxes or whether you might be better off filing separately. You can run different scenarios to see what works best for you.
Bottom Line
For the FAFSA, the married filing separately status won’t help you unless you are truly separated. If you live in the same household and aren’t planning a legal separation or divorce, your spouse’s income and assets will be used to determine your eligibility for financial aid.
On the other hand, if you are informally separated and living in different households and have divided your finances, you can get an exemption from including your spouse’s financial information on the FAFSA. At that point, the married filing jointly status can be a hassle as you try to separate your assets. Instead, consider filing separately for that tax year and then revisiting your tax filing status with the IRS after you end your marriage.
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