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:

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.

Build Credit and Protect Your Identity With FreeKick

For a successful FAFSA application, you need a secure identity and a good credit profile. A good credit profile shows you’re good at handling finances and increases your chances of obtaining student loans, while a secure identity helps you clear FAFSA verification. FreeKick by Austin Capital Bank is an FDIC-insured deposit account that helps you both build credit and protect your identity.

Building Good Credit With FreeKick

You’re eligible for FreeKick’s credit building service if you’re between the ages of 13 and 25. This is a great way to establish a credit history early on in life, and there are only three simple steps involved:

1. Create an Account—With your parents’ help, create an account at FreeKick.bank and choose a deposit that suits their budget
2. Set It and Forget It—Once your parents activate the account, FreeKick will start building 12 months’ worth of credit history for you
3. Keep Growing—After 12 months, your parents can close the account without any fees or continue building credit for you for another year

As a result of establishing your credit profile early, you’ll get a head start of up to five years of credit history when you turn 18, which will help you save $200,000 during your lifetime.

Securing Your Identity With FreeKick

Child identity theft happens every 30 seconds, and if you fall victim to it, your FAFSA application will suffer. You might also get charged with crimes like credit card theft, so it’s good advice for your parents to invest in protecting your identity. FreeKick’s ID protection services include:

FreeKick Pricing

FreeKick has two pricing plans:

Each plan offers:

1. Credit building for six children aged 13 to 25
2. Identity protection for two parents and six children aged 0 to 25

Take the first step toward a successful FAFSA application—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.

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