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Adjusted Gross Income and the FAFSA Form

19 November 2007 2,845 views 5 Comments

If there’s one number that drives more financial aid information, it’s the adjusted gross income on your IRS 1040 form. This number is the effective income you make per year, and since the FAFSA is the government’s way of determining financial need, your adjusted gross income greatly affects how much financial aid you are eligible for.

What are the components of adjusted gross income? AGI is computed by adding your total income to offsets.

Wages, salaries, tips, etc.
Interest and dividends earned on investments.
Taxable refunds, credits, or offsets of state and local income taxes
Alimony received
Business income or (loss)
IRA distributions
Pensions and annuities
Rental real estate, royalties, partnerships, S corporations, trusts, etc.
Unemployment compensation
Social security benefits

That’s your total income. Here’s a list of the offsets:

Retirement plans and savings
One-half of self-employment tax
Self-employed health insurance deduction
Penalty on early withdrawal of savings
Alimony paid
Moving expenses
Student loan interest deduction
Tuition and fees deduction
Educator expenses
Certain business expenses of reservists, performing artists, and fee-basis government officials
Health savings account deduction
Domestic production activities deduction

Offsets are where you can reduce your adjusted gross income the most, and therefore impact your financial aid eligibility. Right off the bat, if you can max out your contributions to eligible retirement plans like 401ks, IRAs, and other retirement vehicles, you’ll lower your AGI and improve your eligibility for aid – not to mention help save for the future.

We’ll add more tips for reducing your AGI in future blog posts, but start by saving for retirement!


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5 Responses to “Adjusted Gross Income and the FAFSA Form”

  1. Sandra says on November 30, 2010 at 1:07 pm:

    Andy, what do you mean by storing assets with my parents? How is that going to help me?

  2. Andy says on November 29, 2010 at 1:20 pm:

    Make sure to store your assets with your parents or grandparents. This is legal and helps you receive more aid.

  3. Edvisors says on September 30, 2009 at 11:07 pm:

    For financial aid questions and answers, visit http://www.financialaidforum.com

    For specific advice on the FAFSA, visit http://www.fafsaonline.com

  4. Patrick Dargan says on September 1, 2009 at 3:59 pm:

    My adjusted gross income on my fafsa form is wrong and they will not accept it.I need to know how to do the adjusted gross income.Could you please show me an easy way to understand this and do it please.It is imperative otherwise I will not be able to finish college.Thank you for your help.


    Patrick Dargan

  5. Sharon Mottola says on March 5, 2009 at 12:30 pm:

    I have filled out my fafsta form but agi in incorrect. Other then our salary we hsve not other deductions. What amI doing wrong? Please advise.

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