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Simplified Needs Test Chart

In certain circumstances the Federal Need Analysis Methodology uses a simplified needs test to calculate the Expected Family Contribution (EFC). This simplified formula ignores assets, thereby increasing eligibility for financial aid. An applicant qualifies for the simplified needs test if the parents have an adjusted gross income of less than $50,000 and every family member was eligible to file an IRS Form 1040A or 1040EZ (or wasn't required to file a Federal income tax return). (Please note that starting in 2004, the AGI threshold for IRS Form 1040A and IRS Form 1040EZ changed from $50,000 to $100,000. Nevertheless, a threshold of $50,000 is still used for the simplified needs test.)

Thus to determine whether the applicant is eligible for the simplified needs test, we need to determine whether a tax filer was required to file a Form 1040 instead of a Form 1040A or 1040EZ. A tax filer was required to file a Form 1040 if line 42, Taxable Income, is greater than $100,000, or if amounts other than zero appear on the following lines:

Section	Line #	Description
Income	10	Taxable refunds or credits of local or state taxes
	11	Alimony received
	12	Business income
	13	Capital gain or loss (ignore if Schedule D not required)
	14	Other gains or losses not reported on line 13 (Form 4797)
	17	Rent, real estate, royalties, partnerships, S corporations, trusts, etc. (Schedule E)
	18	Farm income
	21	Other income (e.g., Net Operating Loss carryforward, etc.)
	22	Only if using Foreign Income Exclusion (IRS Form 2555 or 2555EZ)
Adjustments	23	Archer MSA deduction (Form 8853)
	24	Certain business expenses (reservists, artists & government officials)
	25	Health Savings Account deduction
	26	Moving expenses
	27	Half of self-employment tax
	28	Self-employed health insurance deduction
	29	Self-Employed SEP, SIMPLE and qualified plans
	30	Penalty on early withdrawal of savings
	31a	Alimony paid
	35	Domestic Production Activities Deduction
Taxes & Credits	40	If itemized deductions from Schedule A were used
	42	If taxable income is more than $100,000
	45	Alternative Minimum Tax
	47	Foreign tax credit
	54	Other tax credits (Forms 8396, 8859)
	55	Other tax credits (Forms 3800, 8801, etc.)
Other Taxes	58	Self-employment tax
	59	Social Security/Medicare tax on tips
	60	Tax on IRAs and other retirement plans
	62	Household employment taxes
Payments	67	Excess social security and RRTA tax withheld
	69	Amount paid with Form 4868 (extension request)
	70	Other payments from Form 2439 or Form 4136 or Form 8885

The IRS required families that took the Tuition and Fees Deduction in 2006 to file IRS Form 1040, even though they would have been potentially eligible to file IRS Form 1040A in 2005 and before. However, if this was the only reason the family filed an IRS Form 1040 instead of an IRS Form 1040A, they are still eligible for the simplified needs test and auto-zero-EFC, per a margin note on page AVG-37 of the 2007-2008 Application and Verification Guide. Such families should answer "yes" to the question on the FAFSA that asks whether they were eligible to file a 1040A or 1040EZ.

If none of the above conditions apply, the tax filer was eligible to file a Form 1040A or 1040EZ but chose to file a 1040 for other reasons. (For example, some tax preparers file a Form 1040 even if the taxpayer is eligible to file a Form 1040A or 1040EZ.) In this case, the tax filer should be treated as if he or she filed a Form 1040A or 1040EZ for the purpose of determining eligibility for the Simplified Needs Test.

Note: Since 1999-2000, taxpayers who itemize deductions on Schedule A of Form 1040 are now considered to be required to file a 1040 and hence ineligible for the Simplified Needs Test.

Note: If the parent takes a Form 8814 election, whereby they elect to include interest and dividend income from a child under age 18 (age 14 in 2005 and before) on the parent's income tax return, they cannot file an IRS Form 1040A or 1040EZ. This makes them ineligible for the Simplified Needs Test.

This page is based on a chart prepared by Pam McConahay, pmcconahay@ou.edu, of the University of Oklahoma's Office of Financial Aid Services.