<p>If I have an extended relative abroad (I'm a Permanent Resident) whom is willing to pay my room and board, which will be less than the annual exclusion amount, will I have to report this exchange for tax purposes? If I don't report it will the IRS be suspicious if I am only making a certain amount of money, my parent can only contribute a certain amount, and I am only receiving a certain amount in aid and yet I am still able to pay room and board?</p>
<p>Thanks</p>
<p>You are permitted gifts of money. There is tax if it is over $11K (I believe, better check that amount), but not for you, for the giver who has to file a gift tax. It is not something that is going to be an issue with the IRS unless you get audited. If you want to cover that possibility, you need something in writing from the giver, acknowledging the gift.</p>
<p>Thanks, for your input. It's taxed if it is greater than $12,000 but I don't intend for it to exceed that otherwise I would have to involve my extended relative in U.S. tax affairs, which would become too complicated. I probably wouldn't ask my relative for anything in writing, but they can trace the funds to her (extended relative's) account. Would that be verification enough? (The American taxation system is rather kafkaesque)</p>
<p>Thanks</p>
<p>Better yet why not have this relative pay the school directly. No tax issues to deal with. It's done quite a bit.</p>
<p>....Really?</p>
<p>The chances that the IRS is going to investigate this is very small. I doubt very, very much that will be your problem. But I am not sure what you mean by "exclusion amount". Are you getting financial aid? If you are, any amounts given to you other than from your parents is income, and needs to be reported as such the following year as it is considered income. Even if the relative pays the school directly.</p>
<p>Exclusion amount refers to the first $12,000 a person can receive before the government considers it taxable. For instance a gift of $11,500 is not taxable because it has not surpassed the exclusion amount limit.</p>
<p>Are you getting financial aid?</p>
<p>I don't think it could be considered financial aid. If a relative bequeaths me money I don't necessary have to allocate it towards college; it would be a personal choice to do so.</p>
<p>qwilde: Yes, a relative can make a tuition payment or medical expense payment with zero liability (tax wise, and financial aid wise) DIRECTLY to the school or physician. They funds cannot pass to you first.</p>
<p>Thank You.</p>
<p>I am not worried about the tax liability for Qwilde. If he is gifted under a certain amount, appears to be $12K , now, that is not a tax issue. Actually, for him, it does not matter what the amount is; gift tax is assessed on the giver. But if he is getting financial aid from a college, any money given to him or towards his expenses needs to be included on the FAFSA as other income. Now, this is an area that people ignore a lot, since kids often get graduation gifts and the such from friends and relatives who know someone needs money for college. But it is supposed to be reported and if it is discovered, it will be included as the student's income and assessed 20%, is my understanding. If Quilde is not getting financial aid, and is only concerned about the tax implications of a cash gift, my concern is a non issue for him, as he does not have a tax issue for gifts, and the giver only does if the amount is over the IRS threshhold which Q says it will not be.</p>
<p>I was worried it might be considered as income. I haven't received my financial aid package yet (I applied EDII), but I'm quite sure that I will receive a substantial amount of aid-the college doesn't meet 100% of need, but is quite generous- because my EFC is zero. My financial aid will likely cover my tuition, but of course probably not my room and board. My mother can't afford my room and board, as she barely makes double digits (I don't even think she did this year), which is why my relative is financially assisting me. So, you are asserting that if I receive money from my relative it will be calculated into my annual income? If so, then my EFC might not be zero and I might not be eligible for a Pell Grant, so it would be almost pointless because I would then have to pay more for tuition. Again, kafkaesque.</p>
<p>qwilde--why are you so certain that you will not get aid to cover any of your room and board? If your EFC is 0, it's quite likely that you will get aid which will cover more than tuition, and also that you will be eligible for loans to cover any gap, should one exist. So, instead of having your relative pay now and having to report it, if the relative is willing, he or she could pay the loans later instead.</p>
<p>Either way, since you've already got the ED app in, wait to see what aid you actually do get, and then go on from there to figure out the best path.</p>
<p>Actually, it is worse than 20% if it is gifted to you and counted as income. It is 50%, and then if you have it sitting in your name somewhere, it is an additional 20% as an asset. Better you take out a loan, properly documented from the relative at market rates, with interest deffered, and have him forgive the loan later. Because if will effect your financial aid numbers if he gives you the money or pays the school directly.</p>
<p>I don't see why this is kafkaesque. If you have a relative or anyone willing to give you college money, you do not NEED it. There are many out there with a zero EFC who do not have a soul they know who will give them a dime. Why should those who work for their money be assessed that 50% (there is a $2000 + income exclusion for the student's income), and it not be assessed for some one who is GIVEN the money? There are some unfair thing in this process, but I don't think this is one of them.</p>
<p>
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I don't think it could be considered financial aid. If a relative bequeaths me money I don't necessary have to allocate it towards college; it would be a personal choice to do so.
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</p>
<p>qwilde, I don't want you to be confused but there are going to be 2 separate issues here: The gift as far as the IRS is concerned and the gift as far as the school and financial aid is concerrned. Depending on the amount of the gift, even if the you do not have to report the gift to the IRS, you will have to report the gift to the school.</p>
<p>to piggy back on cptofthehouse's post....</p>
<p>This money would be considered your asset and would be used in calculating your EFC. In addition, most schools will ask, if not this year, then definitely next year about gifts you have recieved (that also will affect your FA from that school).</p>
<p>"Either way, since you've already got the ED app in, wait to see what aid you actually do get, and then go on from there to figure out the best path."</p>
<p>Yes, you are probably right I should just wait. It is rather nerve-racking though; I am scrutinizing all the possible scenarios.</p>
<p>"I don't see why this is kafkaesque. If you have a relative or anyone willing to give you college money, you do not NEED it. There are many out there with a zero EFC who do not have a soul they know who will give them a dime."</p>
<p>Yes, but there are very few who are apart of a family of four and a parent who's annual income is generally $8,000-$12,000. </p>
<p>Why should those who work for their money be assessed that 50% (there is a $2000 + income exclusion for the student's income), and it not be assessed for some one who is GIVEN the money? There are some unfair thing in this process, but I don't think this is one of them."</p>
<p>I would rather work for the money than receive it -I am not indolent. I believe that the college will provide the necessary aid for tuition (probably hefty loans included), but not room and board. If I start working part time, while at college, to attempt to pay my room and board fees, the financial aid officials will recalculate my package and expect me to pay more for tuition considering my new income, which I believe to be unfair.</p>
<p>"This money would be considered your asset and would be used in calculating your EFC. In addition, most schools will ask, if not this year, then definitely next year about gifts you have recieved (that also will affect your FA from that school)."</p>
<p>Thank You, I haven't received any gifts this year, so at this particular point it doesn't concern me. I just wondering hypothetically if receiving gifts from a relative would affect my financial aid, which is ostensibly so.</p>
<p>
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I just wondering hypothetically if receiving gifts from a relative would affect my financial aid, which is ostensibly so.
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</p>
<p>Not true. it will affect your FA because the school will take the gift into consideration when calculating your award or recalculating because you are required to report the gift to the school.</p>
<p>Remember demonstrated need is
Cost of attendance - EFC = demonstrated need </p>
<p>If you get a gift, a portion of the gift will be assessed to your EFC meaning your EFC will increase and your demonstrated need will decrease.</p>
<p>while you may have a FAFSA EFC of "0" according to the Federal Methodology (FM) a need analysis formula used by the federal government. Based on the information captured on the Free Application for Federal Student Aid (FAFSA), the FM is used to determine eligibility for federal and state financial aid. IF your school uses the profile or their own financial aid forms they will specifically ask about gifts that you have received</p>
<p>I can understand the argument that assessing a student 50% of his earnings towards his EFC. Particularly kids from low income families as there are often portions of that income that may be assisting the family which still maybe at zero EFC with that income added to them. But how they come up with the %s is not something I can argue. However, I can see no justification for not assessing someone the same amount for a gift or for a relative who is paying part of the college costs, as someone EARNING the money. Afterall, the money is going to the school, and you are even considering it to be directly given to the school. I can even justify arguments that it should be assessed 100%. The amount your college will give you is based on your family size and income. How much they want you often comes into the picture too. But someone gifting you should not get a break. Especially when there are ways of handling this transaction as I mentioned earlier so that you don't get assessed anything. </p>
<p>There are very few students lucky enough to have someone willing to give them college money where it can make a difference. And for you it made the difference of being able to apply ED with a zero EFC. Most kids who need financial aid cannot afford to take the chance of applying ED. They have to go RD so that they can compare offers and hopefully get nearly all of their need covered. When you only have the one school, you are pretty much at their mercy if they choose to let you find ways to pay for the education, or give you a loan heavy package.</p>
<p>I would play around with the calculators, Q, and see the best way to treat the infusion of money. Loan, gift to you, gift to your family. If your parents' income is low enough, the additional amount, if given to them to pay your costs, may not increase the EFC at all. The worst thing to do is for it to go through you as a gift, because of the reasons I gave above. Hopefully, you get enough aid so that you can swing it with as little gap as possible.</p>