<p>This question is for parents that know something about economics. Is this the right way of thinking about this?</p>
<p>One way of thinking about the net tuition cost is as a progressive tax.</p>
<p>My friend with a freshman in college and and two others told me that she was thinking about going back to work, but half of what she made would go to taxes (25% federal, 15% self-employment, plus state taxes), and on top of that her daughter’s financial aid would be reduced by 50% of what she made. She would net almost none of what she could make!</p>
<p>So of course she won’t be going back to work. But if you have, say, 3 kids spaced four years apart each, this knocks you out of the work force for 12 years? This seems like a nutty incentive structure. Do we want to sideline potentially highly productive women just as they are freed up from their parenting job?</p>
<p>I think it depends on the type of aid she’s getting, and believes will be reduced.</p>
<p>If a portion of the aid package is loans then having her earnings go toward tuition is a GOOD thing, because ultimately it reduces the loans required and interest payments that will need to be made.</p>
<p>I’d be skeptical of the 25% Fed Income Tax simply because one needs to take into account itemized deductions and exemptions. For example, on a gross income basis my household income reaches the 25% tax bracket but our ‘effective’ tax rate as a whole is only around 6% because of the deductions, exemptions and credits we are entitled to.</p>
<p>The 25% federal rate is the marginal rate, that is, what she would pay to them (the feds) on the next dollar of income, should she choose to earn it. Good point about the loan/grant mix, though.</p>
<p>I hope you don’t think I’m being snarky, but posts like this drive me nuts. Of course, your friend thinks it is a MUCH better idea for OTHERS to pay for the college costs for her kids than if she were to work herself to make the same contribution. I’m sorry, but this type of thinking drives me crazy. Of course, there is nothing wrong with what your friend is doing. BUT I guess I think if she is lucky enough to land a job, it would be wonderful if SHE contributed to her kid’s college education…and leave the need based aid to someone less fortunate.</p>
<p>As you’ve stated, tax rates are marginal. For 2009 they are:</p>
<p>10% on the income between $0 and $16,700
15% on the income between $16,700 and $67,900; plus $1,670
25% on the income between $67,900 and $137,050; plus $9,350 </p>
<p>The income protection allowance for a family of 5 with one student in college is $28,750. There are also allowances for FICA, federal income tax, state income tax, and employment expenses. </p>
<p>So it’s not a clear case of adding up percentages to figure that a marginal increase in income will go 100% to taxes and decreased EFC. Your friend needs to run her numbers through a FAFSA calculator to get the real number. </p>
<p>Yes, I think so too, thumper. I mean, we are paying full fare. On the other hand, I can see that it’s nuts for her to work 40 hours per week for… nothing? A sense of honor, but no money?</p>
<p>vballmom, I think you are right. I ran the numbers myself and got a total of 80% marginal rate. But still, would you work if it only meant taking home 1 dollar in 5?</p>
<p>She would not be working for “nothing”. She would be working to pay her kid’s college costs. You know…a LOT of us do that. We WORK to pay for our kids to go to college. EVERY NICKEL of my pay has gone to college costs for the last 7 years…every nickel. I wouldn’t dream of quitting my job so my kids could get need based financial aid. I’m grateful I can work…and this is a good place for the money to go. But that is my opinion…and I guess others don’t share it. Some feel that just staying at home, when they could work…and netting need based aid is the way to go. If that is their choice…I guess that is their choice. Personally I don’t agree with it.</p>
<p>I can see an 80% “tax” rate happening if the husband has a high-paying job already, so that the wife’s marginal contribution to income is at the highest tax rate, and also at the highest FAFSA rate (47% of adjusted available income over $28,600). But I think to choose not to work if that means only taking home a small percentage of income is short-sighted in many ways. She would be building up job experience, seniority, making contacts in her field and in the working world, plus many other intangibles. It’s not a cut-or-dry calculation.</p>
<p>I agree. My understanding is that ‘financial need’ doesn’t automatically mean you get grants and scholarship but rather a portion of this could (and is probably) student loans. It doesn’t make sense to not go back to work in order to allow her daughter to be saddled with loans.</p>
<p>I guess, also, it depends on where her daughter goes to school - some schools cover 100% of financial need - some don’t.</p>
<p>My husband is a tax accountant. Nothing irritated him more than when people say they are not going to try to earn more money because they have to pay more in taxes (unless your expenses go up - say for example, child care). Mathematically, it generally doesn’t make sense. You never pay 100% in taxes; there is almost always some amount of incremental monetary benefit to earning more money. Of course, your example isn’t very specific in terms of dollars, so it’s hard to tell whether the "I have to pay 25% in taxes, 15% in self employment (I’m assuming that’s social security & Medicare, which, of course, is deductible from your adjusted gross income), state taxes and a 50% of reduction in financial aid’ really pans out to a net wash. I would suggest she contacts her accountant.</p>
<p>Just as a side thought, is it ethical for someone who really doesn’t need a job in this economy to apply for one if someone else needs the work more desperately. With 10%+ unemployment could you take a job if you knew that many others really needed the job?</p>
<p>I can think of three arguments for going back to work sooner rather than later:</p>
<p>1) She will most likely have access to some kind of health insurance pool just in case hubby dies or becomes disabled.</p>
<p>2) She will have access to some kind of retirement account. Making it less likely she’ll be a financial burden on college-kid when she’s old and her potential grandkids are headed to college.</p>
<p>3) She will be on track for a better job sooner.</p>
<p>However, this woman has a college freshman and two more coming up. She may well have factored that into her cost/benefit analysis without explicitly stating it. Those other two may still need a powerful lot of supervision on her part. If the family can continue to make it on one income, and Mom’s job is to ride herd on the younger set, this may be the best solution for her family at present.</p>
<p>silverlady…is it ok for your child to receive need based aid when you could actually get a job and earn the money necessary to send your child to college?</p>
<p>Yes…someone may get a job when others need a job. BUT the reality is that the person who GETS the job may very well have skills, education or training that those who are not getting jobs do not have. </p>
<p>Your rhetorical question is about as good as mine.</p>
<p>Honestly, if this individual is ONLY staying at home because they want more need based aid and they CAN get a job, I have an issue with that.</p>
<p>I can see the ethical issue of not working in order to transfer to others the financial obligation of paying for college. But that’s not the OPs point. </p>
<p>Let’s say spouse makes $95,000 annually. You go to work for say $30K. You have three kids, one in college and one in private HS and one in elementary school. The private school kid needs transportation which you can’t provide now that you’re working. The HS student needs transportation to the private school which is >10 miles away, which you can’t provide now that you’re working. The elementary school kid needs pre-school and after-school attention you can’t provide now that you’re working. You need work clothes and work transportation you wouldn’t otherwise need. You pay social security and medicare taxes. You pay marginal federal and state taxes. You lose the Hope Credit and Child Credits, and perhaps gain back a bit with the Child Care Credit. </p>
<p>So, after all those losses and new costs, how much is really available to pay for the eldest’s college? From the $30,000 gross income, the tax-related reduction numbers $2,700 in social security and medicare taxes, $8,500 in federal tax, $1,500 in CT state tax, $2,400 in lost HOPE credit, and $1,800 in lost Child Credit. That leaves $13,100 … less the clothes and transportation and additional child support costs associated with you now working. If all that stuff costs $200/week your net is … $2,700.</p>
<p>So no OP, I don’t see a way to get to an effective 100% TAX RATE … but it doesn’t take much imagination to find scenarios where a family’s CASH FLOW is REDUCED when a parent goes back to work. As other’s point out, there may be an ethical reasons for doing this regardless.</p>
<p>The scenario you outline probably applies to lots of women, but not for the OP. Note the last sentence:
The question has to do with the marginal benefit of working, pure and simple.
If I had chosen to stay home, I could have gotten a huge amount of financial aid for my two Ss. But I did not. I have been working full-time since they were each 2.5 months old. That’s what got us in the $200k+ bracket.</p>
<p>This works if the mom has been in the workforce all along. If someone has been a SAHM, and is looking for a low-paying job to help pay for college, she may be smart to take a cold hard look at whether it will really help the family. Depends highly on how much is loans vs. grants.
OTOH, getting something on your resume before you are silver-haired will help if/when the day comes when you really need the job.</p>
<p>Yes. For all of the reasons others said, and call me silly, but my parents couldn’t afford to put me through college and I’m appreciative that through hard work we are able tot do it for ours.</p>
<p>From the discussion, the marginal benefit is not zero. That, to me, means that the SAHM mom should go to work.<br>
Today’s NYT has an article about women who are getting back into the workforce because their husbands were laid off. My H has been laid off several times since he began working. Luckily, he was able to get another job within at most three months of being laid off. Even more luckily, the fact that I had a job allowed him to choose the best job. Depending on just one paycheck is a risky business.</p>
<p>However, the benefit from staying home is not zero, either. So the proper comparison is the value she creates for her family in her time at home, as compared to the marginal benefit of working.</p>
<p>I worked for years taking home one dollar in three. Basically taxes and babysitting each got a third. I thought it was important to keep a foot in the door in my profession. (I worked half time.) If you count transportation and clothing I made even less.</p>