Qualifying Children and FAFSA

[dtlee]

I have an interesting situation where three college age students are living in a household with their parents and an older sibling. Any two of the children and their education credits will wipe out all of the parents' tax liability on the federal and state. This leaves one extra child whose exemption and credit are not needed on the parents' return.

The older sibling makes as much as the parents do and could benefit from one or more of the dependents. In fact, the tax benefit to the older sibling may be higher if the older sibling claims the siblings as Qualifying Children than the tax benefit to the parents.

My question is this:

I know that I can compute the relative tax benefits of having the parents or the older sibling claim the other three children as dependents, but I am concerned of what impact this may have on the FAFSA application process and the aid they are given.

Is anyone familiar enough with the FAFSA process to know if having the parents not claim the children will hurt their financial aid situation? I would hate to claim a two-thousand dollar credit only to jeapardize the family's financial aid.

Any ideas or thoughts would be welcome.

[Valarie]

Doug,

I do know that if the student is under 23, the FAFSA will still ask for the income of the Parents, regardless of who they are claimed by, or even if they claim themselves. This is a FAFSA rule, so I doubt if the tax return will change that.

Personally, my daughter is 21, lives with me when she is not away at school, her dad doesn't pay support, so I don't have to include his income on the FAFSA. She has had 2 internships, 6 months each, where she earned enough to have to claim herself, yet my income still has to be reported on the FAFSA - regardless of the fact that I didn't claim her as a dependent - based solely on the fact that she was not 23 years old.

Hope this helps...

Valarie

[Lion]

FAFSA Dependent

As Valarie said, the FAFSA definitions are not the IRS definitions. FAFSA asks for the parents income and asset information in most cases. If divorced parents, FAFSA needs info from the parent with whom the child lived the longest, no matter whether that parent claims the child as a dependent for tax purposes or not.

[dtlee]

Thanks Valarie and Lion,

I am not concerned that they might want to use the sister's income on the form. My concern comes from the fact that the FAFSA form seems to be asking (for Question 81) for the number of exemptions claimed by the parents. I would guess that it might be beneficial for them to be claiming all three children that they support. However, taxwise, they really would be better off letting their oldest claim at least two of them.

I know they use the parents' finances (rather than the sister's) but it would seem that they use the information on Question 81 for something. and I would hope that removing exemptions from their tax return would not hurt them.

Am I totally confused? I really do not have any experience in this area.