SS Disability w/ Lump Sum Back Pay & Repayment - EFC?

<p>I'll be entering my junior year and our family has had very similar FAFSA information each year; therefore, my financial aid award each year has remained similar as well.</p>

<p>However, in January 2011 my mom began receiving Social Security Disability along with a few years of back pay, resulting in a large lump sum payment to start. (Prior to SS disability, her private employer disability income was always $15,000/year.) The award of SS disability resulted in a significantly higher AGI being shown for tax year 2011 since it included this one-time lump sum payment because her SS award was retroactive.</p>

<p>Our family accountant did a tremendous job accurately accounting for these changes and my parents filed their 2011 taxes last week. We now need to revise my FAFSA from "estimated" to "final." FAFSA personnel advised we should update only AGI and parental income because the SS taxable portion is included in the AGI (which it is). FAFSA and my university said the discrepancy between the much larger AGI in 2011 (due to SS lump sum payment) will be reconciled not on FAFSA but by filling out a special form with my FinAid office to explain and document the discrepancy.</p>

<p>When awarded the SS disability, mom was required by law to return nearly all of the lump sum payment to her previous employer as reimbursement because they had been paying her long-term disability for several years. SO, the real discrepancy is that our AGI is not accurate by FinAid standards because we had to <em>return</em> the lump sum back payment amount to her previous employer. For example, previous years' AGI would be around $65K; this year AGI was $98K. Now, FinAid advises we fill out a form explaining the situation and providing documentation (no problem) and they will calculate next year's FinAid based on the information provided by FAFSA and the completed form.</p>

<p>Since our AGI was "artificially high" at $98K in 2011 and dad's income remains the same and is included in the AGI, is it as simple as my university calculating the $98K AGI, subtracting the $76K lump sum repaid to her employer and therefore not our income, resulting in $98K-$76K = $22K amount used to estimate my EFC as well as my $2,500 summer income? There are no other figures on the FAFSA that have changed from previous years. My parental income and personal summer income have remained virtually the same until this year. All info above is detailed on the 2011 tax return.</p>

<p>I've spoken to my FinAid office and was led to expect an accurate FinAid adjustment, but of course they won't commit to an answer now. I'm very curious to know how this might impact my FinAid package and EFC and wonder if anyone has a clue how the above scenario may be treated by FinAid. Might they use a $98K AGI less $76K repayment (plus my summer income) formula, or is it not as simple as that? </p>

<p>I'd love to hear from anyone who might have a clue. Thanks in advance for reading this.</p>

<p>I have revised this question and re-posted it this morning to be more succinct and clear. Please excuse this longer post unless you would like to reply. Thank you in advance. I apologize for the confusion.</p>

<p>Junkstyle, I have some experience with SS Disability and Fin Aid, but your issues are so specific that I think that the best information you can get will be from the Fin Aid office at your school. I would lay out the details as you have above and have lots of supporting documentation. Fin Aid officers can make professional judgements to award you additional aid based on unusual circumstances.</p>

<p>In my own family’s case, we got a lump sum payment but since we did not have to return it, the amount inflated our AGI for that year, and our EFC was higher than it is this year.</p>

<p>One thing – you haven’t said which school you are attending, but if you aren’t attending one that promises to meet need, there is no guarantee that the school will award you more aid even if they do adjust your EFC downwards. (Most schools don’t promise to fully meet the need of all students.)</p>

<p>ETA: By the way, were you under 18 or still in high school for any period which the lump sum covers? If so, you may be entitled to a lump sum of your own from SS. And since it would not be taxable income to you it would also not have to be reported on FAFSA. (The untaxed portion of SS benefits don’t get reported.)</p>

<p>Megmo has hit all the points in his answer. It all comes down to the school and how the financial aid office operates. If it is truly a situation where it is unworkable, that they cannot get around that inflated number, the best thing to do might be to take a gap year. However, if this is a school that does not tend to meet full need anyways, it could all be smoke screen and you may not have gotten a big aid package even with the lower income figures. </p>

<p>My close friend had to have her child delay college for a year because of a huge blip in income due to her husband’s early retirement and distribution of benefits that went right into a business he was starting. They had two in college, and the difference in what they could get was just too substantial to let it go. Their daughter took a year off and the son took a gap year. That came down to $40k in savings at least. Both kids were looking at private schools that guaranteed to meet full need and in the case of the DD, she had gotten a $20K award the year before that was not renewed to to the one time distribution. They could not get the school to budge, nor did the son’s school where he was just accepted as a freshman. Both kids took a course to get themselvethat s in good shape towards their major (the D was going to be tight in making the requirements), worked for a month or so, and also went on a major trip… Their family EFC was still inflated the following year, due to the kids working, but the parents knew the financial aid rules well enough by that time, that they did get nice packages since the family primed itself to get maximum aid. </p>

<p>This happens a lot with one time awards that are pre designated for certain purposes and for losses and catastrophes that are simply not indicative of what a family’s earning history has been and will be. If a financial aid truly cannot get around the situation, and is one that would have given more aid had the situation not occurred, you take off the year and try again.</p>

<p>Thanks Megmno and Cptofthehouse! Our CPA has provided us with a professional tax explanation that succinctly & specifically details the situation in layman’s terms, as well as showing what our “true” income was after the reimbursement was made. Uni FinAid said a letter from the CPA would be very beneficial. Per FinAid, my parents will fill out a simple form where there is a category for one-time lump sum 1099 payments, such as retroactive SSDI. My parents will summarize briefly that they never had use of the [reimbursed] money, and we’ll provide a copy of the 1099, the CPA’s letter, the letter requesting reimbursement, and a copy of that reimbursement check front and back. My parents are also ordering a tax transcript in advance should FinAid request that. My Uni doesn’t promise to meet all need, but they usually do for good students, which is very gracious. I also have a large merit scholarship, so it looks as though things will work out. Thanks for your help!</p>