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Resources > FAFSA > All You Need To Know About FAFSA Untaxed Income

All You Need To Know About FAFSA Untaxed Income

Start Building Your Child’s Credit

Filing the Free Application for Federal Student Aid (FAFSA) is a crucial step in securing financial assistance for your education—it gives you access to federal student aid like grants, scholarships, work-study programs, and loans. However, completing the FAFSA form can seem overwhelming if you’re a newbie, especially when it comes to understanding what income you need to report.

While taxable income is straightforward, reporting FAFSA untaxed income can be confusing if you don’t know what counts as such. This guide will explain what is considered untaxed income on the FAFSA and why it’s important to report it accurately.

You’ll also learn how to avoid FAFSA fraud and why establishing strong credit early in life is crucial for your financial future.

What Is Untaxed Income on FAFSA?

FAFSA defines parent untaxed income as any income received that isn’t subject to federal income taxes, such as:

  • Child support—Payments received from a non-custodial parent to support their child
  • Alimony—Payments received from a former spouse under a divorce decree or separation agreement
  • Social Security benefits—Retirement, disability, and survivor benefits received from the Social Security Administration
  • Supplemental Security Income (SSI)—Federal income supplement for low-income individuals and couples who are over 65 years old or disabled
  • Veterans benefits—Educational and disability benefits received from the Department of Veterans Affairs
  • Worker’s compensation—Benefits received for injuries or illnesses sustained on the job
  • Unemployment benefits—Temporary income received while unemployed
  • Interest earned on certain bonds—Includes savings bonds and municipal bonds
  • Gifts—Cash or non-cash gifts exceeding $250 received from someone outside your household
  • Housing and food assistance—Any assistance received through programs like SNAP or public housing
  • Certain rental income—Money received from renting out your primary residence for less than 15 days

Why Is Untaxed Income Reported on the FAFSA?

Although untaxed income doesn’t directly impact your tax bill, it still plays a role in determining your Expected Family Contribution (EFC). The EFC is a measure of how much of your education costs for the given year you and your family will be expected to pay. Here are a few reasons why untaxed income is reported on the FAFSA:

ReasonExplanation
Assessing financial needThe FAFSA determines whether you’re eligible for financial aid based on factors like your income, family size, and assets. Untaxed income helps the FAFSA have a clearer picture of your financial situation and determine how much financial assistance you need 
Ensuring fair distribution of aidIncluding untaxed income helps ensure that financial aid is distributed fairly among students. If untaxed income wasn’t considered, students who don’t have such income might seem like they have less need for financial help than they actually do, leading to them receiving less financial aid than they’re entitled to
Ensuring transparencyReporting all income, including untaxed income, promotes transparency in the financial aid process. This helps students and their families understand how their financial information is used to determine their eligibility for aid

How To Report Untaxed Income on the FAFSA

The FAFSA requires you to report the total amount of untaxed income you received in the base year, which is two years prior to the academic year you’re applying for. You’ll report this information on the appropriate section of the FAFSA form, usually labeled “other untaxed income.”

When reporting your untaxed income, you shouldn’t include income from welfare payments, food stamps, and earned income tax credits. Also, make sure you report all your untaxed income accurately to avoid delays in processing your application or receiving an incorrect financial aid award.

Common FAFSA Mistakes To Avoid

Filling out the FAFSA requires checking and reporting a lot of information, but taking the time to do it correctly can help you avoid making mistakes that could affect your application status. To ensure a smooth and successful application process, avoid these common errors:

  • Using the wrong FAFSA website—While you may think it’s easy to recognize the official FAFSA website, you might be surprised how many phishing websites are out there. These might appear like the official FAFSA website but are designed to steal your sensitive information and use it for fraud. So, don’t confuse the official FAFSA.gov website with FAFSA.com (a fake website used by identity thieves)
  • Leaving fields blank—Fill in all the fields with either relevant information or “0” or “not applicable” if it doesn’t apply. Missing information can lead to miscalculations and delays
  • Making formatting errors—Always round up income to the nearest dollar and avoid using commas or decimal points in numeric fields
  • Providing incorrect identification numbers—Double-check your Social Security number (SSN) and driver’s license number. If your parents don’t have SSNs, enter 000-00-0000. Don’t fabricate numbers or use a Taxpayer Identification Number
  • Not using your legal name—Use your legal name as it appears on your Social Security card. Nicknames or variations can cause confusion and potential rejection
  • Giving out an incorrect address—Enter your permanent address, not a temporary campus or summer address
  • Not using the IRS Data Retrieval Tool—The IRS DRT allows you to import your tax information directly from the IRS into the FAFSA, reducing the risk of errors in reporting income
  • Skipping review before submission—Before submitting your FAFSA, review the entire application to catch any mistakes or omissions. This final check can help ensure the accuracy of your information and help prevent processing delays

Does the FAFSA Require a Credit Check?

If you’re worried about needing a good credit score to get federal student loans, you can breathe a sigh of relief—unlike private loans, most federal loans don’t involve any credit checks. This is fantastic news for young students who haven’t built credit due to the restrictions imposed by the CARD Act of 2009 and borrowers with less-than-perfect credit histories.

Direct Parent PLUS and Direct Grad PLUS loans for graduate students are exceptions to the general rule. While these federal loans don’t require a specific minimum credit score, they do involve a credit check to assess the borrower’s creditworthiness. This is why it’s important to develop responsible credit habits early on, which will also increase your chances of qualifying for other types of loans in the future. You can also benefit from having a good credit score in other ways, such as:

  • Lower interest rates—Good credit can help you qualify for lower interest rates on private student loans, mortgages, and car loans, saving you thousands of dollars in interest over the life of the loan
  • Better loan terms—A strong credit score can help you get favorable loan terms like longer repayment periods and lower down payments and make loans more affordable and manageable

While essential for your financial well-being, building a strong credit profile takes time and dedication, and it’s especially tricky if you’re under 21. Fortunately, you can do this more easily by relying on the help of your parents to get a product like FreeKick—a dedicated credit building and identity monitoring service backed by Austin Capital Bank.

FreeKick—Credit Building and Identity Protection (Coming Soon)

FreeKick is a combination of an FDIC-insured deposit account and a wide range of services for credit building and identity monitoring, helping safeguard the identities of the whole family. The plans cover up to two adult parents and six children aged 0 to 25.

Parent-Sponsored Credit Building and Credit Profile Monitoring

FreeKick empowers teens and young adults between the ages of 13 and 25 to kickstart their credit journey with its parent-backed credit building system. Establishing a strong credit history early in life can save you over $200,000 throughout your lifetime.

To start building your credit history, follow these three simple steps:

  1. Create a FreeKick Account—With the help of your parents, visit FreeKick.bank and choose a plan depending on your needs and budget
  2. Set It and Forget It—After selecting a plan, you can activate credit building in your account dashboard, and FreeKick will automatically start building your credit over the next 12 months. If you’re 18 years old (19 in Alabama), FreeKick will start reporting your credit history to the three major consumer credit bureaus:
  1. Equifax
  2. Experian
  3. TransUnion
  4. Keep Growing—After a year, you can either close the account and get 100% of your deposit back or renew the account and keep building your financial future

ID Monitoring Services

With alarming statistics reporting a child’s identity is stolen every 30 seconds, FreeKick rises to the challenge with its robust security features designed specifically to safeguard both adult and minor children, as well as parents:

Services for Adult Children and ParentsServices for Minor Children
Credit profile monitoring
SSN monitoring
Dark web monitoring for personal information
Up to $1 million identity theft insurance
Full-service white-glove concierge credit restoration
Lost wallet protection
Court records monitoring
Change of address monitoring
Non-credit (Payday) loan monitoring
Free FICO® Score monthly
FICO® Score factors
Experian credit report monthly
Credit profile monitoring
SSN monitoring
Dark web monitoring for children’s personal information
Up to $1 million identity theft insurance
Full-service white-glove concierge credit restoration
Sex offender monitoring—based on sponsor parent’s address

FreeKick Pricing

FreeKick offers two pricing options designed to accommodate various budgets. Each plan includes comprehensive identity protection for two parents and up to six children under 25, as well as credit building for children aged 13 to 25. Both deposit options are FDIC-insured up to $250,000 to provide extra peace of mind.

FDIC-Insured Deposit AmountPlan Fee
$3,000$0 (Free)
$1$149/year

Set yourself on a path to financial success while protecting your whole family’s identities—sign up for FreeKick today.



Freekick provides a double dose of financial empowerment and security for your whole family. It helps teens and young adults build strong credit profiles and offers identity motoring for up to two adult parents and six children under 25.

Freekick: ID Protection & Credit Building

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