What Is an Exemption on FAFSA?

Students applying for grants and loans for higher education must complete and submit the Free Application for Federal Student Aid, commonly called the FAFSA. Dependent students must include their parents' income tax information for the previous year, and any exemptions claimed on the return are also included as FAFSA exemptions. However, there are also circumstances that "exempt" particular income considerations for student aid purposes.

Documents

To complete the FAFSA, you will need your parents' income tax returns and your income tax return, if applicable. Independent applicants, which are those not depending on parental support, must provide their personal income tax return. Other necessary documents include the W-2 forms and passive income records, along with identification, such as a driver's license and Social Security card. Ensure that all the information on the FAFSA is correct before submission, such as the Social Security number and dates of birth, because filing incorrect information causes application rejection.

Tax Exemptions

The applicant must enter parental tax exemptions as they appear on Internal Revenue Service Form 1040 on line 6d. If the parents filed IRS Form 1040A, the exemptions are located on line 6d. If the return includes exemptions on box 1040EZ under the term "you" or "spouse," use the 1040EZ worksheet to determine exemption numbers. If neither box is checked on line 5, enter 01 for a single parent or 02 for a married couple. For parents who are widowed, separated or divorced but filed a joint tax return for the prior year, give only his own exemption portion.

Assets Exempt From Reporting

Certain assets are exempt from FAFSA calculations for aid. This includes the family home or farm, or a family-owned business with less than 100 employees. Family businesses include ownership by people directly related to the applicant, or those related by marriage. Personal possessions such as motor vehicles or furniture are exempt. Do not report any credit card or similar personal debt. Life insurance cash value is exempt from asset consideration, unless the income has been distributed to a beneficiary.

Native American Student Exemptions

According to the FAFSA application instructions, Native Americans students do not include any assets received under the "Per Capita Act or the Distribution of Judgment Funds Act, the Alaska Native Claims Settlement Act, or the Maine Indian Claims Settlement Act. If you are unsure if you qualify for such an exemption, you should contact U.S. Department of Education.