If a Noncustodial Parent Contributes Money To the Student's Education, Is the Amount Untaxed Income?

No. Under the FAFSA Simplification Act, effective with the 2024-25 award year, only the following forms of untaxed income that are included on the federal tax return will be included on the FAFSA and in the federal need analysis/calculation of the student aid index (SAI) for Title IV federal student aid funds:

• Untaxed portions of Individual Retirement Arrangement (IRA, or Individual Retirement Account) distributions (withdrawals);
• Untaxed portions of pension and annuity distributions (withdrawals);
• IRA deductions and payments to self-employed SEP, SIMPLE, and qualified plans;
• Tax-exempt interest; and
• Foreign Earned Income Exclusion.

This does not include student aid the noncustodial parent receives and pays on behalf of the student, such as a parent PLUS or private educational loan taken out on the student's behalf or tuition benefits received from the parent's employer on the student's behalf. Student aid received by the custodial or noncustodial parent on the student's behalf is accounted for as other financial assistance (OFA) when packaging the student; therefore, it is not reported as untaxed income on the FAFSA.

[References: 34 CFR 685.102, Estimated financial assistance; 673.5(c); and Chapter 2 of the Application and Verification Guide volume of the FSA Handbook]

Also see AskRegs Knowledgebase Q&A, Which Questions Are Removed From the FAFSA Effective With 2024-25?

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