I am debating whether (and when) to take a $40k/yr grant for a multi-year work project. If I take the grant now, then when C2 does FAFSA & CSS in a couple of years, the grant money will inflate my income for the prior prior tax year. That money will disappear the years I’m actually paying the bills for C2. Would this drop affect our EFC? In other words, will C2’s schools reassess our EFC based on current income rather than on prior prior year income that’s 40k more?
The schools will use the prior prior income year…and if that happens to include your $40,000 windfall, it will be included in the calculation.
But it will only be included that ONE year.
I seriously doubt they will use a different tax year income for you.
You can ask for professional judgement but you will have to prove that this is a one time money event. And even with that, the school might not remove it from consideration.
I guess my question is…why couldn’t part of that be used to fund college costs for that ONE year?
Prof mom- take the 40K split against two tax years (2018 you get 20K, 2019 you get 20K). Use the money to max out your retirement savings-- 401K for both you and your spouse, or IRA if you have. And you won’t get 40K, will you? Payroll taxes, etc. get taken out, so your takehome is significantly less. And if it’s self-employment money, you will need to pay taxes on it anyway.
Money is gone and not sitting in the bank when you file for your taxes.
Is this your question? If not- I’m not sure what your question is…
It sounds like this is more than just one year in which $40k is received. OP says that it’s “$40k/yr grant for a multi-year work project.”
But the pretax contribution to retirement accounts will be added in as income.
But the balance in the retirement account won’t be counted as an asset.
I thought the op didn’t want this to impact income.
True: I don’t want it to impact income. It is multi-year (2-3 years). After taxes and the 12k or so hit to EFC each year, I’m not sure it’d be worth it to me right now. This thing will be a LOT of work. I could delay it a year or two so that it only affects the last 1-2 years of C2 college or something. I thought I remembered reading somewhere that a significant drop in income could be grounds for reconsideration re EFC. But maybe that’s for massive changes like job loss. I’m going to have to make a spreadsheet and project out as best I can!
Can you get this money in the beginning after Spring of your kiddo’s sophomore year in college?
It’s $40,000 a year in additional income. I still don’t understand why some of that can’t be used for college costs. Many folks would consider themselves lucky to get additional income during the college years.
Is that grant given to you like income? Is there any accountability as to how those funds are spent?
I’m thinking that the grant is an award to cover the work project and isn’t to be used for personal/college expense…meaning that it’s not to be used to pay your mortgage, car payment, or child’s college. If a parent got a grant to cover tuition, that wouldn’t be “income”…so maybe this isn’t either???
How do the funds come to you? As a check ordirect deposit into your personal checking account? Or does it go into some work account where you need to show how funds are spent?
I can’t imagine situations like when a prof is awarded a grant for some research that any of that is really income as it’s not going to his personal acct for his own use.
Will this grant be taxed?
@thumper1 The 40k is the income portion of the grant (not expenses). And yes, there are grants that have stipend disbursements. It is taxed. And yes, I can use it to pay college costs, of course (or mortgage or anything I want). But if I can wait to do it later, then it won’t affect my EFC.
I imagine that at least some of the grant amount is compensation for the OP’s time and professional knowledge. That makes it taxable income, unless there’s a specific part of the tax code that provides an exception.
It sounds like you are anticipating that your kiddo will be attending a college that meets full need for all. Is that correct?
If not, then really, your EFC would be the minimum you would be expected to pay at most colleges.
Or…would,this stipend take you above the income for something like the Calgrant, Pell, Tap or the like?
If not…really…this is all financial gymnastics that might not net you a nickel of additional need based aid.
As an example…when my second kid went to college…the first kid’s EFC went for $44,000 a year to $22,000 a year. He got a big $250 increase to his aid…and it was actually his merit award. He didn’t get any additional need based aid.
If you can defer getting this money until your kid is a second semester sophomore college student…then I don’t believe it will ever affect your FAFSA. Like right now…it’s 2018. Anyone who is a college sophomore will use the 2017 income for the 2019-2020 school year…which will be their senior year…and that tax year…has ended.
“It sounds like you are anticipating that your kiddo will be attending a college that meets full need for all. Is that correct?”
@thumper1 That’s correct. From all the replies, though, it sounds like there won’t be a reconsideration for a 40k drop in income. So I’ll likely wait it out.
I appreciate all the thoughtful responses to my query. Thank you, all.
Schools will sometimes review a ONE time bump in income that isn’t going to repeat. But yours is not a one time one year thing. It’s three years.
I guess you could ask, but really…your income is increasing for three years…it’s not a one time forced stock buy out, or some kind of one time extra job. It’s three years.
Here is another thought…could you start taking the money now…and have your kiddo 2 take a gap year? Would that mean that the extra money wouldn’t be in the picture for financial aid purposes?
@thumper1 All good points/suggestions. I think my best option right now is a slight delay. I don’t want to impose a gap year on my kid. He’ll be READY. So will we. ; ) But this thread has gotten me thinking of creative ways to manage the extra income when it does come. I wasn’t sure when I’d want to take on the work anyway, so this sort of solves it for me.