Since taxes seem to be top-of-mind for everyone, here’s a quick tip for bringing your income down on the FAFSA or CSS PROFILE: Don’t get a state tax refund. If you do, you have to report it as income. Check with your tax preparer to determine the right amount of state withholding that avoids both a refund and a penalty for underpayment. If you use tax software like TurboTax, it can calculate correct state withholding as well.
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For the 2021 Base Income, should we avoid a large state tax refund or does COVID change that? Also, does it matter how high the federal tax refund is for FAFSA or CSS Profile?
The 2018 tax law changes eliminated the need to avoid state tax refunds, since only $10,000 of state taxes are deductible anyway. Federal refunds don’t matter on either form; only your total federal liability matters.