My step-father is currently in the last stages of a workers compensation lawsuit with his former employer and they are finalizing the offers. At this point, he is to receive about 80k via monthly installments for the next 7 years. He has already been receiving about the same monthly amount for the last 2 years (they will subtract what he has already been given from the amount he is to receive) so our EFC will not change because of that.
However, there is a lump-sum medical insurance payout that will happen later this year/early next year after they finalize it. This will be substantial with both lawyers from each side talking about 250-275K depending on what Medi-Cal comes backs after calculating it into their formulas. Obviously, my EFC will go sky high after this lump-sum is included in our FAFSA/CSS Profile.
I’m attending American University in the fall. At this current point, my net price is affordable (about 20K a year). I fear that the lump-sum will make us have to pay full price during the year that it applies - because of prior-prior year, I’m probably looking at my junior year. 61K will be far too much for my parents to pay.
What options do I have? My parents are talking about divorcing prior to receiving the settlement because my step-fathers finances would not have to be reported if they were divorced. Is that a sound idea or is that illegal? Another option that I’m thinking about is taking a year off during the year that this would be on my FAFSA, am I allowed to do that? Any help or ideas is appreciated - thanks!
I don’t believe the medical payment is income. It might be an asset if in an account the next time you file a fafsa, but if it is used for medical payments before then it may never come into play.
You will use the 2015 taxes for the next fafsa too, so the WC income won’t change things. It is that lump sum as an asset that would be an issue now (in Oct when you file again).
If your parents are receiving a lump sum payment large enough that the lawyers are taking a quarter of a million bucks, how will $61K be too much for your parents to pay?
^BC the lump is going to the hospital and insurers to repay them for their expenses. This family will only see the $80k a year to replace dad’s income!! This OP has a serious Q, don’t scare them off!!
@HeyItsNick …have your dad talk to the lawyers about this specifically. Look AThe questions on your CSS. This is probably NOT an issue. And your should NOT suspend your school plan (or mom’s marriage plans!!) over it!
That lump may never even hit your “income”. Parents likely did not deduct it on their taxes as medical expense, so it is probably not taxable now.
Your family will likely never even see the check. The lawyer will deposit in escrow, Take her fee, Then process all the checks out to Medicare or the hospitals. This is not generally even “income” on a tax return, and probably will never be in your account.
So nothing should change. If the CSS asks to include it, you will also include those “extraordinary” medical expenses. It should be fine. It is Likely the employer will own the annuity that pays the $ each year, not your dad. So hopefully that won’t be an asset either.
The 2017-2018 FAFSA and Profile will both use the 2015 tax information. The 2018-2019 FAFSA will use the 2016 tax information.
So if you are worried that any of this will be on your taxes , see if the payout can come sometime after October 2017 when you will be filing the 2018-2019 FAFSA.
But if this payout does happen for medical reasons, I do not believe it is considered income. It is an insurance settlement. If you have it in your accounts the date you file your FAFSA and Profile, you will need to list it as an asset.
Thanks for posting guys. At this point, you are saying that the 250-275k won’t be counted as income? I was not under that impression because my step-fathers monthly payments are considered ‘‘untaxed income’’ on the FAFSA/CSS Profile.
For the sake of clarity, I mislabeled the medical insurance payout, it is not a payout but a buyout. My step-father was a police officer who was shot in the line of duty and we’ve had nothing but problems with what his city is willing to cover insurance wise so my parents have decided to take a payout (whether that is the best decision or not… I don’t know but it is not my place).
@patsmom The money is to last for medical procedures & other things that are affected by the fact that my step-father will never be able to work again. I am not even saying that I want to break the law (I even put in my post whether taking a year break would be possible) but I will never make my parents pay 61K for one year when our regular income allows us to only pay 20K a year. If that makes me selfish, so be it. But I call it being financially prudent.
If it is to replace salary, workers comp, it is taxable as income. If it is for medical treatments or pain and suffering, it is usually not taxable as income, but would mostly likely be an asset if in an account on the day you file fafsa. It’s very important that the money is classified in the correct way, not just for fafsa but for taxes. I’m sure all the attorney know this.
@HeyItsNick we are in a similar situation as my husband is an injured police officer who is negotiating a settlement right now. I’m on this site trying to figure out how that will impact our kids financial aid (one in college and one entering fall of 2017). I’m happy to find your thread as it answers some of my questions. I hope that your father is recovering from his incident. It takes quite a toll on the family as a whole.
One other question I have for you - have you been able to find scholarships for the children of LEOs? I’m searching but mostly finding that it’s only line of duty deaths and not officer involved shootings or other injuries.
Your parents would not have to formally divorce (and ALL the expenses associated with THAT). At most, they could “separate” (not required to be legally separated), and the step-dad’s income/assets would not count.
Has the department of labor been contacted, is he part of a union? I can’t believe that they won’t be fully covered by workman’s comp if they were injured in the line of duty.