FAFSA Deferred Compensation – What you need to know! | FAFSA Series Part IV

Pin It

When filling out the FAFSA, we always receive a few questions regarding FAFSA Deferred Compensation.  Specifically, what should I include, and what can I not report?  While the answer to that isn’t simple, (and let’s face it, not much IS simple with regard to the FAFSA application) there are a few things you should be aware of before you fill out that section.

What is FAFSA Deferred Compensation?

According to FinAid.org, deferred compensation is defined:  An employee can sometimes forgo their wages in exchange for unspecified compensation at a future date.  In other words, any untaxed income that you’ve received would fall into this category.  If you participate in any pre-taxed pay deduction programs such as a 401k or 403B Retirement Plan, that is what should be reported in the FAFSA Deferred Compensation section.

If you’re looking at your FAFSA Application, find question 95 or Section 5 where you report “all untaxed income”.  Here is where you will enter these pre tax plans, if you have any.  The most common are the 401k and 403b Plans, but also include any other pre-tax contributions to tax-sheltered or deferred pension, savings or annuities.

Quick Tip: When reporting deferred compensation on the FAFSA, only report contributions and/or deductions!  You do not need to report the total value of the fund.

What Should I NOT Include as FAFSA Deferred Compensation?

Let’s be honest, no one wants to over-report their income and assets on the FAFSA application.  So make sure you are filling out the income and asset sections correctly and putting the right plans/funds in the right sections.  As a general rule, any fund or plan you have that gets taxes taken out of it should not be reported as Deferred Compensation.

The IRS wants their cut…of everything.  So if you have an investment fund, plan or account, it’s going to be reported on the FAFSA whether it’s deferred compensation (pre or untaxed income), or considered an investment fund (already taxed such as a Roth IRA).

Not Reporting Assets on your FAFSA

If you think by hiding, or not reporting certain assets or investment accounts on your FAFSA will get you a lower EFC, think again.  Many families across the country try to circumvent the system thinking that a lower EFC will get you more money.  It cannot be stressed enough that this is not the case.

While it is true that an EFC number on a FAFSA application does have some bearing on how much aid you will receive, you have to have an extremely low number to get any type of Federal Grant, or “free money”.  We’re talking just above the poverty level here.  And another thing to think about is this: If you report inaccurate information and knowingly omit certain assets, this is considered fraud and can get you into some serious trouble with the Federal Government.  So ask yourself, is it really worth it to not report income and/or assets?  Probably not.

One thing to remember, each school that you put down on your FAFSA report is going to make their own judgement about what you’ll receive at their school in institutional aid.  Each school costs a different amount, so reporting accurately on the FAFSA will only help you avoid future headaches.

In case you missed them, here are the previous articles in our FAFSA Series!

Part III:  What is an EFC Number on a FAFSA Application?
Part II:  When to Fill Out The FAFSA for Fall 2011 
Part I:  What is the Purpose of the FAFSA Application?

Want Something FREE!?
Get our FREE Report: 10 Reasons You WON'T Get Into College! sent directly to your email!
We hate spam just as much as you

Comments are closed.