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Simplified Needs Test Chart

In certain circumstances the Federal Need Analysis Methodology uses a simplified needs test to calculate the Expected Family Contribution (EFC). This simplified formula ignores assets, thereby increasing eligibility for financial aid. An applicant qualifies for the simplified needs test if the parents have an adjusted gross income of less than $50,000 and every family member was eligible to file an IRS Form 1040A or 1040EZ (or wasn't required to file a Federal income tax return). (Please note that starting in 2004, the AGI threshold for IRS Form 1040A and IRS Form 1040EZ changed from $50,000 to $100,000. Nevertheless, a threshold of $50,000 is still used for the simplified needs test.)

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:

SectionLine #Description
Income10Taxable refunds or credits of local or state taxes
11Alimony received
12Business income
13Capital gain or loss (ignore if Schedule D not required)
14Other gains or losses not reported on line 13 (Form 4797)
17Rent, real estate, royalties, partnerships, S corporations, trusts, etc. (Schedule E)
18Farm income
21Other income (e.g., Net Operating Loss carryforward, etc.)
22Only if using Foreign Income Exclusion (IRS Form 2555 or 2555EZ)
Adjustments23Archer MSA deduction (Form 8853)
24Certain business expenses (reservists, artists & government officials)
25Health Savings Account deduction
26Moving expenses
27Half of self-employment tax
28Self-employed health insurance deduction
29Self-Employed SEP, SIMPLE and qualified plans
30Penalty on early withdrawal of savings
31aAlimony paid
35Domestic Production Activities Deduction
Taxes & Credits40If itemized deductions from Schedule A were used
42If taxable income is more than $100,000
45Alternative Minimum Tax
47Foreign tax credit
54Other tax credits (Forms 8396, 8859)
55Other tax credits (Forms 3800, 8801, etc.)
Other Taxes58Self-employment tax
59Social Security/Medicare tax on tips
60Tax on IRAs and other retirement plans
62Household employment taxes
Payments67Excess social security and RRTA tax withheld
69Amount paid with Form 4868 (extension request)
70Other payments from Form 2439 or Form 4136 or Form 8885

The IRS required families that took the Tuition and Fees Deduction in 2006 to file IRS Form 1040, even though they would have been potentially eligible to file IRS Form 1040A in 2005 and before. However, if this was the only reason the family filed an IRS Form 1040 instead of an IRS Form 1040A, they are still eligible for the simplified needs test and auto-zero-EFC, per a margin note on page AVG-37 of the 2007-2008 Application and Verification Guide. Such families should answer "yes" to the question on the FAFSA that asks whether they were eligible to file a 1040A or 1040EZ.

If none of the above conditions apply, the tax filer was eligible to file a Form 1040A or 1040EZ but chose to file a 1040 for other reasons. (For example, some tax preparers file a Form 1040 even if the taxpayer is eligible to file a Form 1040A or 1040EZ.) In this case, the tax filer should be treated as if he or she filed a Form 1040A or 1040EZ for the purpose of determining eligibility for the Simplified Needs Test.

Note: Since 1999-2000, taxpayers who itemize deductions on Schedule A of Form 1040 are now considered to be required to file a 1040 and hence ineligible for the Simplified Needs Test.

Note: If the parent takes a Form 8814 election, whereby they elect to include interest and dividend income from a child under age 18 (age 14 in 2005 and before) on the parent's income tax return, they cannot file an IRS Form 1040A or 1040EZ. This makes them ineligible for the Simplified Needs Test.

This page is based on a chart prepared by Pam McConahay, pmcconahay@ou.edu, of the University of Oklahoma's Office of Financial Aid Services.

 

 
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