Every student and their family should fill out the Free Application for Federal Student Aid (FAFSA) to evaluate their eligibility for federal financial help. It includes Pell Grants as well as work-study programs. However, whether to include Social Security Disability Insurance (SSDI) benefits on the FAFSA is a big concern for many students.
SSDI benefits should not be reported under the FAFSA. It is because these benefits are typically not taxable and, hence, it is not essential to disclose them on the FAFSA. Therefore, only taxable income, such as an individual’s wages or salaries, should be declared on the FAFSA. However, there are several other factors to consider.
This article will explore whether or not to include SSDI on your FAFSA and several factors impacting this decision.
Potential Impact of Including SSDI Benefits on The FAFSA
Although SSDI benefits should not be reported on the FAFSA, some people may still choose to do so. However, it could have negative effects, such as lowering your eligibility for financial aid.
A person’s expected family contribution (EFC) may rise if they report non-taxable income on the FAFSA, such as SSDI benefits. The EFC is a gauge of how much a family can spend on education, according to the federal government. It is determined using many criteria, including family size, assets, and income.
An individual’s eligibility for need-based financial aid may be lowered if the EFC is higher. Grants, work-study programs, and subsidized loans are all examples of need-based financial aid. A larger EFC and a smaller amount of financial aid may be awarded to a student whose FAFSA includes SSDI benefits.
It is crucial to remember that this rule has a few exceptions. A person must disclose their taxable income on the FAFSA if they receive both SSDI benefits and taxable income.
Additionally, since supplemental security income (SSI), a separate kind of social security benefit is regarded as taxable income, recipients of SSI must disclose it on the FAFSA.
What Happens If You Do Not Report SSDI Benefits On The FAFSA?
It is unlikely that there will be any negative repercussions if someone fails to disclose their SSDI benefits on the FAFSA. As mentioned above, SSDI benefits are not regarded as taxable income and must not be disclosed on the FAFSA. There should not be any fines or penalties for failing to disclose SSDI benefits on the FAFSA.
However, it is crucial to ensure that any other income resources are accurately disclosed on the FAFSA. Financial aid eligibility may be affected, and there may be legal repercussions if taxable income is not reported.
Taxable SSDI Benefits
If you received taxable SSDI benefits, you must include them in your income tax return used for filling out the FAFSA. Benefits from SSDI that are reported in your adjusted gross income (AGI) on your tax return are taxable. Any benefits you received that had federal income tax withheld from them are included.
Non-Taxable SSDI Benefits
As stated above, there is a high chance that you might not need to disclose any non-taxable SSDI benefits you received on the FAFSA, depending on your circumstances.
The SSDI benefits excluded from your AGI on your tax return are non-taxable SSDI benefits. Any benefits you received that were not subject to federal income tax withholding fall under this category.
Remember that you do not have to declare non-taxable SSDI benefits paid to your parents as part of their income if you are classified as a dependent student on the FAFSA. However, if you are a self-supporting student, you must disclose all your earnings, including non-taxable SSDI benefits.
Factors To Consider
The following sections will cover the factors that must be taken into account when determining whether to report SSDI benefits on your FAFSA:
1. Dependency Status
Whether you must declare non-taxable SSDI benefits paid to your parents depends on your dependency status on the FAFSA. Your parents must disclose their taxable income if you are a dependent student.
If you are a self-supporting student, you must disclose every source of taxable income.
2. Impact On Financial Aid Eligibility
Your eligibility for financial aid may be impacted if you include SSDI benefits as part of your income on the FAFSA. Your Expected Family Contribution (EFC), the sum you and your family are anticipated to contribute toward your education, is calculated using a formula in the FAFSA.
Your eligibility for financial help may be reduced when your income increases and your EFC rises. However, the FAFSA does not treat all incomes equally. The calculation takes into account several allowances and deductions. It includes the number of family members enrolled in college and the expenses that may lower your EFC.
Additionally, the Federal Pell Grant, given to students with the greatest financial need, considers your financial need when the FAFSA awards various types of help. As a result, declaring SSDI benefits on your FAFSA may not automatically reduce your ability to get financial aid.
To guarantee that you are eligible for all aid opportunities, it is crucial to precisely fill out the FAFSA with all your income and assets listed.
3. Impact On Taxes
You must include any taxable SSDI benefits in your income on the FAFSA if you receive them. Your taxes may be impacted if you report taxable SSDI benefits on the FAFSA. Your AGI may rise because of the taxable SSDI benefits you received. Your eligibility for specific tax credits and deductions will consequently be impacted.
However, since non-taxable SSDI benefits are not factored into your AGI, you do not have to worry about your taxes if you report them on the FAFSA. The FAFSA may raise your income. It may affect your eligibility for certain tax credits and deductions if you are an independent student and have earned non-taxable SSDI benefits.
Conclusion
It is crucial to decide which forms of income should be listed and which should be excluded when completing the FAFSA. Benefits from Social Security Disability Insurance are not taxable and should not be disclosed on the FAFSA. However, if a person receives taxable income and SSDI benefits, they must provide that information on the FAFSA.
It is essential to accurately disclose all sources of income on the FAFSA to prevent financial aid eligibility from being adversely affected.
