The FAFSA now uses income from your tax return only. But “income” isn’t just your wages or your Adjusted Gross Income. It’s all the income on your tax return, whether you pay taxes on it or not. Good news: the FAFSA no longer considers income that isn’t on your tax return, such as payroll deductions to your 401k, though the CSS Profile still does.
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When you file the FAFSA, your tax return data will be transferred directly from the IRS. (You can save yourself tons of hassle by just doing this rather than submitting your info manually, since the latter virtually guarantees an audit.) You’ll want to have a copy of your tax return handy when you file because you’ll be asked to verify a couple of important lines on your tax return, in particular whether you have an IRA or other retirement account rollover (not included in income even if it’s on your tax return) and any grants or scholarships that were reported as income (also not included in income).
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Since the FAFSA is pulling your tax return data, it’s not using current data. Instead, it’s prior-prior year data. This means that when you file in fall of 2026 for the 2027-28 school year, you’re using 2025’s tax return. This also means that if you’ve filed an extension for your taxes, you’ll need to wait until your taxes are filed before you can file the FAFSA.
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Big picture: the FAFSA takes your total income from your tax return-- taxable and untaxed-- then subtracts actual federal taxes paid and an allowance for FICA taxes, subtracts an income protection allowance based on your family size, and calls that “Available Income.”
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The CSS Profile, on the other hand, takes a more expansive view of your income. In addition to tax return income, you’ll be asked to provide total income from your W-2. This means that you’ll add back pre-tax payroll deductions for things like 401k, 403b and HSA contributions.
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When filing the CSS Profile, you’ll need to have your tax return handy, and probably some reading glasses because you’ll be asked to enter info from numerous lines of your return. You’ll also need your W-2 so that you can add back pre-tax items from your income.
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Excluding W-2 income from the FAFSA but including it on the CSS Profile means it’s hard to know how to optimize your income for financial aid purposes. After all, you don’t know during sophomore year of high school— your first income year for financial aid purposes— whether your student will choose to attend a school requiring the CSS Profile.
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And the differences can be significant. Let’s say both parents contribute $20,000 to their 401ks and they max out an HSA ($8,550 in 2025). That’s $48,550 of additional income on the CSS Profile. They could switch some of the 401k contributions to Roth in order to increase the subtraction for taxes, but then their FAFSA income goes up.
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A few things are the same on both forms:

• Untaxed income on your tax return is added back to your income, so making traditional IRA contributions hurts, as does withdrawing from a Roth IRA.
• Total tax liability is subtracted, so minimizing itemized deductions helps.
• Interest and dividends earned in taxable investment accounts or savings accounts hurts, so funding tax-free accounts like 529s and Roth IRAs is beneficial— as long as any appreciated assets are sold prior to a FAFSA income year (the first year starts Jan. 1 of sophomore year of high school).
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My general recommendation to families is to optimize your retirement savings for your retirement. Financial aid considerations are secondary to that. If doing what’s right for your retirement hurts you on the CSS Profile, then look for colleges that don’t require it— which is the majority of them.
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Here’s a quick list of specific items that do or do not gointo income:

• Wage income: Yes, although you can ignore your W-2s to file your taxes since only the net amount reported on your tax return will count.
• Pre-tax contributions to IRAs: YES, these are income since they are listed on your tax return.
• Roth or other non-deductible retirement contributions: NO, these do not get added back because they’re already included in your Adjusted Gross Income.
• Roth IRA or other nontaxable distributions from retirement accounts: YES, these are income that shows up on your tax return and must be reported! This is one of many reasons not to use a Roth IRA as your college savings vehicle.
• Pre-tax salary deferrals to 401(k)s, 403bs, and other employer retirement plans: NO, these are not income on the FAFSA but they are on the CSS Profile! You do not have to add income not reported on your tax return to the FAFSA any longer; however, you do have to add it to the CSS Profile.
• Pre-tax contributions to self-employed retirement plans such as individual 401ks, SEP IRAs or SIMPLE IRAs: YES, if these are reported on your tax return they are added to income (see Schedule 1 if you’re not sure).
• HSA contributions: As long as they go through payroll, they are not added back. However, if you make a payment to your HSA directly, this is deducted on your tax return and is added back.
• Education tax credits (AOTC and LLC): These are reported on the FAFSA so that federal taxes paid can be adjusted so you are not penalized on the FAFSA for having claimed an education tax credit.
• Work Study earnings: NO, these are not income! On your FAFSA you will be asked for work-study earnings so that these can be subtracted from your income.
• Taxable scholarships: NO, these are not income. However, since they are reported on your student’s tax return they’ll need to manually subtract them after linking their tax return to their FAFSA. (Scholarships are taxable if they cover items in excess of tuition, fees, books and supplies. This includes scholarships covering room and board.)
• Non-taxable rollovers between 401ks and/or IRAs: NO, not income. However, if the rollover is reported on your tax return (check line 4a) you’ll need to manually subtract it after linking your tax return.
• Qualified distributions from the parent’s 529: NO, not income! This is one of many reasons to use a 529 as your college savings vehicle.
• Child support received: NO, it’s not income! Instead child support received is reported as an asset.
• Housing or living allowances for military or clergy: YES, it’s income! Unless the military allowance is for on-base living.
• Untaxed disability benefits including veterans noneducational benefits: YES, it’s income!
• Dividends and interest earned in a non-retirement investment or savings account, including tax-free interest: YES, it’s income!
• Untaxed Social Security benefits: NO, it’s not income! Including if the student received it.
• Roth conversions: YES, it’s income! Unless it’s a backdoor Roth conversion which is nontaxable and considered a rollover.
• Nonqualified withdrawals from a 529: YES, it’s income! Plus you pay a penalty. If you’re distributing excess to a child who’s no longer a student, make sure it’s distributed to them, not the parent, so it doesn’t need to be reported.
• Taxable transactions in an UTMA or UGMA account: YES, it’s income to the student! However, if the purpose of the transaction is to transfer the UTMA/UGMA account to a custodian 529, as long as the gain realized through sale of the assets in the account keeps the student below the student income protection allowance (about $12,000 on this year’s FAFSA) it’s still worth doing.

And with all of this, remember that income is based on the tax year used in the FAFSA. When you file the FAFSA in fall of 2026, you’ll use 2025’s tax return. Any such income received in 2026 will be reported on next year’s FAFSA.