My dad’s job is a high commission, low base job. He makes a 30k base and was wondering about the legality of withholding his commission checks in order to qualify for financial aid at top 100% needs-based schools.
It’s too late to do anything for the 2017 or 2018 school year, but what if he did it for the last two years of my schooling?
He could pay off our current home to lower cash savings, transfer all of my money to his name temporarily, him and my mom basically take in 120k annual income, and we would qualify for 30k~ financial aid a year.
I had a couple other questions:
Is all of this legal?
Is primary residence included in CSS profile? He could sink in a lot of money to pay off primary residence.
How does company ownership work? My mom is a 51% partner at a company worth about 300k (150k her share). My dad works the company, so they could hold his commission checks.
Remember falsifying your FAFSA is a federal offense where you risk fines, jail, repayment of all of the aid you fraudentky received , not getting aid in the future
In order to pull this off they would have to lie to the IRS also
Misreprensarion of the application materials ( including your financial aid is enough to rescind your admissions or diploma, leaving you with a worthless piece of paper
Would it be misrepresentation to push the commission checks to the next year or two? It’s not like he wouldn’t have paid taxes on the amount since he had not received any money. I’m just wondering how that would be illegal?
You are talking about deferring income into another year you’ll be in school, and it sounds like the low income years won’t be until your jr/sr years of college. How are you going to pay for college the first and second years? If you go to a ‘meets full need’ college, it’s probably going to be expensive.
It is not illegal to prepay a mortgage. Some CSS colleges do consider equity.
It is not illegal to give your parents your money. It is fraudulent to hide your money in your parents’ accounts. If it is your money, you must report it as a student asset. You could put it into a 529 account if you are planning to use it for college and then it is a legit parental asset.
If you don’t get into a top school, you’ll not be getting $30k in FA with an income of $120k, assets of the business, and a lot of equity in your home.
I don’t think you would be asking this if you thought it was OK to do so.
For 2017-2018, you are using 2015 tax year.
For 2018-2019, you will be using 2016.
Are you saying that your dad would defer his commission from 2017? All of it?
You know…there are lots of regulations that are changing. For example, my husband cannot carry over more than a small amount of PTO time to 2017…so he is taking the whole,week off. He will be issued a check for the remaining PTO time in January.
I can’t imagine your dad’s company will go along with this plan…as THEY would need to keep this commission on THEIR books…which is not likely to happen.
I will also paraphrase some sage advice from a knowledgeable and frequent poster here. Do NOT do anything financially just to get need based financial aid that you wouldn’t otherwise do. In other words…if you weren’t willing to live without that commission otherwise…don’t live without it because of college.
And anyway…what is wrong with USING some of,that income to actually pay your college bills?
With your stats you were looking at getting merit at very good state schools.
What schools would give a lot of aid for $120,000 income? And also are great engineering or CS schools?
Where is your dad getting commission from? From real estate sales? How can you postpone those payments by a year or two if the transaction takes place in the current year?
No. The part about “transfer all of my money to his name temporarily” would be considered financial aid fraud.
Most schools that require Profile do look at primary home equity, so taking savings and paying down a mortgage will work to reduce assets for FAFSA and for only a few Profile schools.
Deferring income (earned commissions) is certainly a legitimate strategy, the question is whether the employer will go along and whether it makes any sense.
@mommdc He works for my mom, who owns the company, so she would essentially be able to do it. He’s a head hunter and gets money from the placements he makes.
This probably wouldn’t end up happening because there is an unethical part to if; we were just going over ideas to lower the COA at top-tier schools.
@thumper1 good point. My parents could make it on 120k a year, especially with a paid off house, but I guess they’d have a restricted life style for two years.
Another problem I thought of is that if he put all his income from two years and withdrew it at once, most of it would be in the top income tax bracket. That difference in taxes would most likely cost more than the savings of college.
As for using the income to pay for it, we were just looking for a way to lower the COA.
@twoinanddone the thought process was to take the cash from last year and this year they have and use if to fund the next two years (which is very possible). They’d be able to do that then sink most of the remaining dollars to pay off our primary residence.
Thank y’all all for the help! I obviously didn’t think this idea out enough on the ethical and legal aspects.
I don’t think it is illegal or unethical to do financial aid planning/tax planning. A lot of people defer income or prepay bills to get them into/out of a certain tax years. Farmers do it all the time. I’ve reviewed tax returns where the filer is in the top tax bracket one year and taking the Earned income credit the next. Takes a lot of accounting and planning.
Do I think it is going to work in this case? There is tax law and there is student aid regulations. Mixing the two doesn’t always work. If it was a FAFSA only school, it might work, but the CSS has a way of getting more information. The taxpayers might lose a large mortgage deduction if they pay the mortgage off to avoid having cash in the bank. The company might not want to hold the deferred compensation (that doesn’t seem to be a problem in this case). If the family is on Obamacare, any subsidies may be lost for the big income years (doesn’t seem to be an issue with this level of income, but for other families switching between a $50k income and a $150k income, it might).
You can do all this, including spending the student’s assets first or transferring them (permanently) to the parents, and it is unlikely your FAFSA EFC will change enough to make a difference (you won’t qualify for Pell or SEOG or maybe even subsidized loans with a parent income of $120k). A CSS school makes its own judgments.
You said this in a previous post. I took it to mean that your parents didn’t think paying $150k total for your education over 4 years was an issue because they earn $500k/year. Now you’re saying they earn $120k. There’s a huge difference between those two numbers.
Find out how much your parents are willing to pay. Add in what you can borrow (~$5500/year) and what you can earn if you work summers (~$3k/year). That’s your budget. If you can find a school that will offer you merit for your stats it will help.
@austinmshauri they’re welling to pay the full amount, my dad was just trying to find a way to save money, but it seems impractical to save 50-60k at most.
My father’s income without commission checks is 30k. His commission checks equal out to the difference in income.
@austinmshauri he wants to defer his commission checks for two years, therefore only having an income of 30k, so he would not be falsifying any tax documents.
I’ve already realized it’s not worth the hassle because then more of his income when he cashes out the commission checks will be at a higher tax bracket, so the tax alone would probably make it a loss.