The financial aid forms use prior prior year tax return info. So any income earned in 2020 might have an impact on 2022-2023 (her junior college year) need based aid…but that income would need to be over a certain amount.
Income earned in 2021 would show on the 2023-2024 financial aid forms…that’s her senior year…right?
@thumper1. Aren’t students allowed to make a certain amount yearly without it affecting their financial aid?
Thought it was like $6,000/year?
This OPs daughter is a high school senior now. They have already looked into the NHRP scholarships, and some do apply to her acceptances. But this student already has full rides to University of South Carolina, and RH. And excellent merit aid from Miami (Ohio) as well. All of these come in at one way below the price point this parent originally indicated.
Hopkins is a great school…but it seemed that finances needed to be carefully considered.
@KevinFromOC IIRC, your wife is a flight attendant. Where I am, those folks are seeing a very significant cut in pay and in flights available now due to lack of passengers and cancelled flights. Can you really pay more money with less income?
@KevinFromOC Well done to your D20! Such great options. I know my D21 (future engineering major) would choose RHIT over Miami or USCarolina, but these are all good choices. JHU is a great school, but the surrounding area is not so great. Good luck to her, whatever she chooses.
What will JHU provide that the other opportunities won’t?
If she chooses JHU, can you tolerate 4 years of uncertainty (FA might vary, unexpected expenses, etc)?
I think @Kayak24 has a D at JHU. Maybe you can reach out to them to see how their FA award changed from year to year.
I personally would feel better with a merit offer, especially if the GPA to keep the award isn’t too high.
For an engineering student that might be an important consideration.
Yes, you are right- currently I think they can earn something like $6600/yr. And apologies if I wasn’t clear earlier, but if the OP is considering a school with need based aid, he should be looking forward to having a plan to pay for all 4 yers , since there may be a bouncing ball, with unpredictable incomes in the current climate, especially when considering a PROFILE school. There is an expectation that the student to kick in a percentage of their income/assets.
The OP’s daughter is clearly bright and is planning to pursue engineering. If, for example, she happens to land a summer internship at a FAANG tech company, she could earn over $7k/mo plus housing. Thats a lot of money and will get calculated in the (yes 2 years forward) FA. So the student should best be prepared to save $ from a sweet internship so they can help cover any increased college costs. Lots of moving pieces with need based aid. I vote for merit $. This student should have no trouble keeping up the required GPA.
Remember also, this student is going to have financial aid that exceeds tuition, fees and books. Any excess aid (not including loans) will be taxable income to the student. They need to put aside money to pay that bill as well.
Hmm. I thought the student is taxed on 50 % after the $6,600 so if they make $7,000 they are taxed on just $200 not the $400?
Both my kids worked and easily made $3,000 just during the school year working 10-15/hours /week. Then add in any summer job so hitting the $6,600 is possible. If they get a good paying internship they can make $10,000-25,000 depending over the summer months so definitely have some prepared planning.
@Knowsstuff - If you are referring to the $ they could make at a FAANG internship, they can make approx. $8K A MONTH (pay plus the housing allowance) and the internships are usually around 10 weeks. So they can make around $20K. Thats a LOT of money for a summer job!! Plus, she could also potentially work during the school year ( eg - tutoring pays better than some other jobs, and can be done virtually so no risk of COVID issues). So could earn a comfortable income.
But note that additional earnings will make more of the room and board scholarship subject to kiddie tax (now at the parents’ marginal tax rate) at both the federal and state level.
Students pay taxes on scholarships that are used for non-QEE (room, board, some fees, travel). That might be subject to the kiddie tax.
Now students get $12,200 as a standard deduction. Much of the taxable QEE is covered. For my daughter, it would have been even with her summer earnings added. Of course if a student gets full room and board in a high COL area ($15-18k), it’s going to be taxed.
If a student earns over $6600, the excess is considered on the FAFSA in the student section at 50% when calculating the student’s portion of the EFC. If the student still has that amount as savings, double whammy.
If the student is going to be making $8k per month? Welcome aboard, says the IRS! Pay your taxes.
Triple whammy if you add 25%(?) federal tax and 9.3% CA tax (kiddie tax rates) onto that. Note also that CA taxes have a much lower standard deduction. Looks like it could potentially be a more than 80% marginal tax rate on additional earnings at least in freshman and sophomore years though you may be able to deduct federal taxes paid on the FAFSA.
TLDR summer earnings may not provide as much help as you might think.
The federal tax rates start at 10%, and a high-paid summer intern may get into the 12% bracket.
https://smartasset.com/taxes/current-federal-income-tax-brackets
For California, the high paid summer intern may encounter tax rates from 1% to 4%.
https://www.bankrate.com/finance/taxes/state-taxes-california.aspx
Looks like “kiddie tax” refers to “unearned” income (wage and salary income is “earned”, based on IRS definitions).
https://www.irs.gov/taxtopics/tc553
https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income
But really, if someone makes $25k over the summer,they should be expected to pay a lot of their college costs. Most college students don’t make that much, and aren’t expected to contribute that much.
@ucbalumnus Extra summer earnings push more of the room and board scholarship into being taxable because it stacks on top. That will be at the kiddie tax rate (parents’ marginal rate) not the student’s earned income tax rate.
Well, the standard deduction can shelter less of the QEE and make it taxable at the parent’s rate (if it is a dependent student). The earned income is going to be taxed at the student’s rate. If the student is earning $25k, it may not be worth it for the parent to claim the student as a dependent for that $500 credit and maybe a little AOTC. Also, if the student is independent for 2020, he/she gets the $1200 covid refund.
The average student earns much less so doesn’t have to worry about this decision. A $12000 standard deduction would have been enough for my daughter to pay practically nothing in taxes even including summer earnings.
If a student already has a $15,000 room and board scholarship, then every extra dollar they earn will increase their total tax payable by an amount equal to the parents marginal rate (kiddie tax rates). Once those earnings start to reduce need based aid then with social security being deducted as well, the marginal tax rate is very high indeed.
The situation may be a bit better if the student earns so much that they are providing more than half of their own support (scholarships are ignored for the purposes of that calculation).
In post #19 you stated that you could afford $15,000 per year, but it would be “painful.” You said you would be willing to allow your D to take out an additional $5000 per year, bringing that number up to $20,000.
Given that $15,000 would be “painful,” it seems to me that JHU is not affordable, especially given all of the additional expenses that are bound to come up…but that undoubtedly contribute positively to the overall experience (internships, etc). Can you afford these possible expenses without hardship?
This isn’t an easy decision…many families have to choose based on finances. Has your D updated her list of what she’s looking for in a school?
Yeah, 22K is on the fringe. For a school like JHU, it’s at least worth a second look, even though it’s still a super longshot.
Their financial aid officer I spoke with virtually assured me that as long as our income doesn’t significantly increase and as long as D2 is financially dependent on us and in a program, that our aid would not change.
Otherwise yes, merit aid >> financial aid.
I have to wait until after the 15th to meet with a tax expert to find out exactly what the other scholarship tax implications are, and then I’ll have a clear picture on the exact costs of each option.