Why did increasing itemized deductions reduce aid in calculator? Seems odd.

Paying for College
1

The Net Price Calculator for the school in question had been reasonably accurate.

I’m thinking of making a property tax payment in this calendar year, rather than in January. That would increase my itemized dedications and lower my gross income.

The calculator doesn’t ask for gross but for wages, and itemized deductions–which the IRS subtracts from wages to calculate gross.

So why do I see less aid when my deductions go up?

It seems like it’s saying more aid for a higher gross income.

2

Because it lowers your tax bill= more cash assets in your pocket.

3

That did occur to me, but it seems odd that a catastrophic medical event (heaven forbid) would decrease aid–particularly if it affected a non-wage earning member of the family.

I suppose to get a definitive handle on this, I’ll need to compare the hypothetical change in my tax bill/refund versus the decline in aid. Fun.

4

The difference there is cash difference: permanent vs timing. If you prepay an expense that is already included in your FA analysis, you get back more cash in year 1. If you no longer have the deduction for year 2, your tax bill will go up, less cash in pocket. Presumably FA goes up. It’s just timing.

For a one time unexpected expense, it would not be in FA until after it happens. Thoeretically, the deduction is taken, less tax, more income, less FA. The next year when you put in that expense into FA, FA would go up. As this is a one time event, it makes a permanent difference overall. Consequently, it should be a net increase in expenses FA (net meaning the expense net the deduction for it).

5

I realized too that it’s a dynamic situation, that a catastrophic medical event would significantly lower my tax bill–although not equal to out of pocket.

And I did a quick calculation with and without the tax payment in this calendar year, and the tax bill decreased by more than decrease in finaid.

Thank for helping put my mind right on this. I googled without success.

Incidentally, this is a great stripped down what if calculator: http://groups.engin.umd.umich.edu/CIS/course.des/cis525/js/f00/silveri.html

Much better than the pages you have to plow through at Block, Turbo, etc.

6

Just keep in mind that 2015 tax return will be used for FAFSA 16/17 and also 17/18. So whatever is on there counts for two years.