How Is Money Received As an Inheritance Reported On the FAFSA? (2024)

FAQs

How Is Money Received As an Inheritance Reported On the FAFSA? ›

Inheritances are not considered income for federal tax purposes, whether the individual inherits cash, investments or property. Starting with the 2024-25 award year under the FAFSA Simplification Act, money received from an inheritance is not reported on the FAFSA as taxable or untaxed income.

If you received a gift or inheritance, do not include it in your income. However, if the gift or inheritance later produces income, you will need to pay tax on that income. Example: You inherit and deposit cash that earns interest income. Include only the interest earned in your gross income, not the inherited cash.

Documentation: Inheritances are typically documented through legal processes such as wills, probate proceedings, or trust documents. If you have access to these documents and can prove that the inheritance has been officially transferred to the person's name, you might have some evidence.

The CSS Profile assesses student income and assets in a similar way. Depending on how the grandson withdraws, manages, or uses the $100,000 he inherits, that money will potentially be counted as income or assessed as an asset that can be used to help pay for college.

Verification doesn't necessarily check the student's or parent's bank accounts. Rather, the school will ask for documentation to clarify information provided in the form. These documents can include income tax returns, W-2 forms, and 1099 forms.

Starting with the 2024-25 award year under the FAFSA Simplification Act, money received from an inheritance is not reported on the FAFSA as taxable or untaxed income. It might be included as an asset depending on what the student, spouse, or parent did with the inheritance after receiving it.

Many states assess an inheritance tax. That means that you, as the beneficiary, will have to pay taxes when you receive an inheritance. How much you'll be assessed depends on the state you live in, the size of your inheritance, the types of assets included, and your relationship with the deceased.

You will not pay tax if you inherit cash, shares, property or gifts unless you are advised by the executor.

The documents needed to prove the source of funds differ in each case. In this particular situation, you will need your father''s death certificate, property deed, sales contract, and documentation of funds derived from inheritance.

What is the FAFSA4caster? ›

The Federal Student Aid Estimator — formerly known as the FAFSA4caster — is a free tool from the U.S. Department of Education that provides an early estimate of your federal student aid eligibility.

The CSS Profile looks at every part of a family's finances that the FAFSA considers: income, bank accounts (and any interest they earn) and assets.

FAFSA vs. CSS Profile. Like the FAFSA, the CSS Profile asks for a family's financial data, though there are important differences: Asset calculations: The CSS Profile counts a greater percentage of a family's assets than the FAFSA in calculating what parents will be expected to pay for college.

Does FAFSA Check Your Bank Accounts? FAFSA doesn't check anything, because it's a form. However, the form does require you to complete some information about your assets, including checking and savings accounts.

Empty Your Accounts

If you have college cash stashed in a checking or savings account in your name, get it out—immediately. For every dollar stored in an account held in a student's name (excluding 529 accounts), the government will subtract 50 cents from your financial aid package.

In general, any inheritance you receive does not need to be reported to the IRS. You typically don't need to report inheritance money to the IRS because inheritances aren't considered taxable income by the federal government. That said, earnings made off of the inheritance may need to be reported.

An inheritance is money or property that you leave to a beneficiary – often a family member, close friend, business partner, religious organization or charity – by way of your will.

Passive income is not always a lump sum payment, like an inheritance or proceeds from the sale of an asset such as a home or stock. It can also come from a source that has a likely continuity over time but is not guaranteed.

Inheriting a trust comes with certain tax implications. The rules can be complex, but generally speaking, only the earnings of a trust are taxed, not the principal. A financial advisor can help you minimize inheritance tax by creating an estate plan for you and your family.