Three questions about CSS profile timing and reporting of gifts:
How do gifts to students get reported on the CSS Profile? My student is likely to get a substantial (around $10,000) holiday gift from their grandparent. For the 23/24 year are we best completing the CSS profile before the student receives the gift?
For the 24/25 year profile:
-Would the gift get reported and would it matter if received in 2022 or should it wait until 2023? (Prior-prior year for taxes would be 2022). Obviously cash in the student’s bank account would get reported, but the gift money is likely to be spent down for school expenses before then.
-I may retire next year; if so I would receive $40,000 cash-out of accrued leave late December 2023. If we submitted the 24/25 CSS Profile in early December would this need to be reported? (I can defer the cash-out a few months into 2024 but it would be better to receive it in 2023).
Background:
One of my kids currently receiving need-based aid at a CSS Profile school. We haven’t submitted the CSS Profile yet for 23/24. They may also attend 24/25.
Grandparent mentioned giving money to the kids this year and asked if that would affect the financial aid. I don’t know the amount but for discussion’s sake assume $10,000 US. (My spouse handles all the finances and paperwork but since this gift is to be a surprise I didn’t want to ask her quite yet).
My retirement date is uncertain but could be as early as the end of 2023. If I cash-out the accrued leave in 2023 I wouldn’t have to pay Social Security taxes because I will hit the cap; if I defer to 2024 I would pay 5.2% Social Security tax but income tax would be 22% instead of 24%.
It will affect the situation pretty drastically. Most schools assess student assets at 20% of the balance each year. So if your kid receives the money before you file this year, they will lose 20% of that as aid reduction right off the bat.
If the grandparent can make the donation straight to their 529 (if any) then it will only be assessed at the parent’s rate, which is a little more than 5%. But of course, then it is restricted to college costs.
For the gift to the child, if the money is in the back it will be reported as an asset. If you can file CSS before getting the money, that would be best for 23/24. If she then spends the money before filing for 24/25, that would again be a good thing.
For your buy-out, I think you’ve hit on the good/bad of each situation. It’s hard to know if we don’t know other parts of your taxes. Will you be working or pulling money from a 401k in 2024? Claiming SS? It sounds like it is income and most CSS schools will call it that, but some might excuse it as a one-time bonus and exclude it. You have to check with her school.
Does the gift itself get shown on the CSS Profile (as income?) or is it just the money in the bank?
Regarding my accrued leave buy-out I think just submitting the CSS profile for 24/25 before I get the money is best. The prior-prior year taxes will be 2022 so the income won’t be reflected… again just what’s in the bank.
Yes, I meant bank but really it can be in a jar or under the mattress. If the student has a cash asset, he has to report it. A gift is not taxable to the recipient as income. It’s unlikely that a $10k cash gift would have any paperwork with the IRS (no form received).
Your accrued leave is taxable in the year received, but if you are doing prior prior for CSS reporting, it may never show up as income (but may as an asset if you save it). It depends on how many years your child has left as an undergrad.
I believe that OP is worried about the student’s $10k gift being reportable on the Profile form as non-taxable income and not necessarily as an asset. As you state, there is no issue of taxability. I haven’t completed the Profile form in quite some time, and the current version is not available for easy reference (unlike FAFSA), so I can’t say if this is a real Profile concern or not. I suggest that OP review the Profile form that was completed for the student last year, and hopefully OP’s own question can then be answered.