FAFSA change for small business owners
Add small business owners to the group of people impacted by the upcoming FAFSA changes for the 2023-24 school year.
Currently, the value of any privately held business, including assets, with less than 100 employees does not need to be reported on the FAFSA as part of its small business exclusion.
This includes a family farm (including equipment, livestock, etc.), if it is the principal place of residence, and if the family materially participated in the farming operation.
However, both exclusions are going away for the 2023-24 school year as part of the many significant changes on the revised form.
On the revised FAFSA, the net worth of any small business or family farm is reported as an asset on the FAFSA. Depending on the value, this could significantly reduce the ability of certain families to qualify for need-based aid.
The net worth is calculated by subtracting business or farm debt from the current fair market value of the business or farm (including the value of land, buildings, inventory, equipment, machinery and livestock). To be considered a business or farm debt, the debt must be secured by the business or farm. If the debt uses something else as collateral, it does not offset the value of the business or farm.
There is one income-based exception to these changes. The FAFSA does have an income threshold for determining whether an applicant is exempt from reporting assets called the simplified formula. Currently, if your income is $49,999 or less, you do not have to report any assets. That income threshold will increase to $59,999 on the revised form, meaning anyone reporting an income of $59,999 or less does not have to report any assets, including the value of small business or family farm.
Leave a Comment