The type of tax return test is used to determine eligibility for the Simplified Needs Test and Auto-Zero EFC.
The Simplified Needs Test and Auto-Zero EFC are simplified financial aid formulas used with the Free Application for Federal Student Aid (FAFSA). The Simplified Needs Test disregards all assets on the FAFSA. Auto-Zero EFC causes the expected family contribution (EFC) to be automatically set to zero, qualifying the applicant for a full Federal Pell Grant.
In addition to satisfying certain income thresholds, applicants must also satisfy one of three criteria, one of which is the type of tax return test.
If a dependent student’s parents or an independent student (and the student’s spouse, if married) filed a federal income tax return and were not required to file a Schedule 1 (or if they were not required to file a federal income tax return), they are considered to have satisfied the type of tax return test.
This criterion was previously based on IRS Form 1040A and IRS Form 1040EZ, which were eliminated by the Tax Cuts and Jobs Act of 2017. Schedule 1 was selected to replace them as the closest equivalent.
However, certain of the additions and adjustments to income on Schedule 1 were too restrictive, so exceptions were made.
If Schedule 1 is filed only to report unemployment compensation, Alaska Permanent Fund dividends, educator expenses, IRA deductions or the student loan interest deduction, the applicant remains eligible for the simplified needs test and auto-zero EFC.
If a tax return was filed for a U.S. Trust Territory, such as Puerto Rico, Guam, American Samoa, the U.S. Virgin Islands, the Marshall Islands, the Federated States of Micronesia or Palau, the applicant is considered to have satisfied the tax return requirement.