Minimizing summer earnings' effect on financial aid Forum

[PKSebben]

^ You're right. It's actually closer to 18,900. You can get it back after filing, but unless you lie about exemptions, you're going to get taxed like somebody that makes 160/yr. I saw a thread on here the other day that said an associate making 160 in NYC will take home about 97k.

Why would you be taxed at 160K if you only make 30K?

Taxes are withheld as if you were making $160,000, but you are refunded the money later on.

There are various ways to fix this, depending on how your firm does W2s.

thanks for being the only adult in this thread.

Edit: and anonymous harvard 1L, too.

[swc65]

Generally Finaid will decrease your need package based on your gross earnings, not what you save from those earnings. think about it a bit and you will see why. Some schools have a cut-off where after say 15k in gross earnings over the summer, they reduce your finaid by a percentage of each dollar earned. So you should still come out ahead by getting a great paying 1L SA. If you're a 2L, then finaid should have already taken your 2L SA into account when they made the three year award, at least they did for me and others Ive spoken with.

[Anonymous User]

Isn't the FAFSA a year behind b/c it's based on taxes? If you're an SA next summer (2011), that income would show up on your taxes filed on April 15, 2012. Not sure how that would affect financial aid. This year's income will appear on next year's FAFSA, so a 1L SA might fuck up 3L financial aid.

I'm the HLS poster from above. Most schools understand that's the case, which is why at least this school asks for your anticipated summer earnings, then requires every student to submit a pay stub from the last summer paycheck (if one did not work in a public interest position). So yes, it greatly decreased my 2L financial aid.

How exactly did they decrease your financial aid? Was it like every dollar you earned during your summer directly went into subtracting you Financial aid?

From the HLS Fin Aid Website

Example 3: Gross Summer Income = $30,000

Taxes: To determine federal taxes for a single student, you first take the gross pay of $30,000 and subtract the standard personal deduction of $5,700 and the $3,650 personal exemption. From the resulting $20,650 you then calculate federal taxes at 15% to get estimated federal taxes of $3,098. State taxes and FICA are both based on the original gross income of $30,000 so the 5.3% rate in Massachusetts generates a state tax of $1,590 and the 7.65% FICA rate generates a FICA tax of $2,295. The federal, state, and FICA taxes are totalled ($3,098 + $1,590 + $2,295) to get an overall estimated tax burden of $6,983.

Estimated Post-Tax Earnings: The estimated total tax burden $6,983) is subtracted from the gross summer income of $30,000 to get $23,017 in estimated post-tax earnings.

Base Summer Living Allowance: The base SLA of $7,200 is then deducted from the $23,017 est. post-tax earnings. The resulting $15,817 becomes the Estimated Net Earnings -- the total amount available for your summer contribution to fund your legal education.

Additional SLA Protection & Assessed Contribution: In a final set of calculations, an additional 10% of the Estimated Net Earnings is protected ($15,817 - 10% = $14,235). This new amount ($14,235) is the assessed SC from summer income.

[PKSebben]

Generally Finaid will decrease your need package based on your gross earnings, not what you save from those earnings. think about it a bit and you will see why. Some schools ahve a cut-off where after say 15k in gross earnings over the summer, they reduce you finaid by a percentage of each dollar earned. So you should still come out ahead by getting a great paying 1L SA. If you're a 2L, then finaid should have already taken your 2L SA into account when they made the three year award, at least they did for me and others Ive spoken with.

some schools ask straight up about your summer take home and drop aid accordingly -- regardless of gross earnings.

[NYAssociate]

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[MrKappus]

Taxes are withheld as if you were making $160,000, but you are refunded the money later on.

There are various ways to fix this, depending on how your firm does W2s.

Bummer.

Not necessarily. There are various ways to tweak your W2 to more accurately reflect your earnings and adjust the withholding.

To clarify, he means w4.

[MrKappus]

Have you lived in New York, DC, or SF? Fine. 5-8k. Still doesn't affect fin aid, but you made a really excellent point that added to the thread.

You're gonna spend $12-15K in less than 3 months? On what?

I've lived in NY/DC, so I'll break it down very very conservatively (e.g., 200/month on going out in a major city...riiiight).

Rent: 2000
Bills (cable/electric/gas/etc.): 200
Groceries: 400
Transport (train/cabs): 200
Fun (aka bars/clubs): 200
Dining Out: 300
Misc (clothes, museums, mags, books, iTunes, giving to street musicians, whatever ppl spend money on): 300

You will start in May and so you'll need to live there for at least 3 months. 3 x 3600 = 10,800. My list is far from exhaustive.

[spondee]

You way overspend. (And I live in NY. Have for many years.)

[Anonymous User]

Fun (aka bars/clubs): 200
Dining Out: 300
Misc (clothes, museums, mags, books, iTunes, giving to street musicians, whatever ppl spend money on): 300

As an associate, I find that I save much more money precisely because I don't have time to do any of that. Most dinners go to the client because I work late enough.

[MrKappus]

Fun (aka bars/clubs): 200
Dining Out: 300
Misc (clothes, museums, mags, books, iTunes, giving to street musicians, whatever ppl spend money on): 300

As an associate, I find that I save much more money precisely because I don't have time to do any of that. Most dinners go to the client because I work late enough.

I'm surprised ppl have so many problems w/ my budget. $300/month for dining out, in NYC?? That's like 4-5 times a month (if you go to pretty cheep places). $200 a month at bars? If you're a guy (I am), that's like 3-4 nights out. Out of 30 days. But ok, maybe I'm a spendthrift. Geez.

You way overspend. (And I live in NY. Have for many years.)

If you're a long-time New Yorker, I'd love to see an example budget from you. Maybe I'll learn something.

[spondee]

I'm surprised ppl have so many problems w/ my budget. $300/month for dining out, in NYC?? That's like 4-5 times a month. $200 a month at bars? If you're a guy (I am), that's like 2-4 nights out. Out of 30 days. But ok, maybe I'm a spendthrift. Geez.

Or maybe I'm cheap.

For example, although I eat out more than 4-5 times a month, I usually only spend $20-$25 each time. The $60 meal is something I have once every other month or so. And no way am I going to spend $50-100 in bars on a single night. I'll go to dives, to happy hours, to house parties; I'll go out with rich friends; but I won't spend that much myself - not as a student.

I also spend only $1250 on rent. Don't take cabs. Limit my grocery bill to $250 a month. Etc.

[MrKappus]

I'm surprised ppl have so many problems w/ my budget. $300/month for dining out, in NYC?? That's like 4-5 times a month. $200 a month at bars? If you're a guy (I am), that's like 2-4 nights out. Out of 30 days. But ok, maybe I'm a spendthrift. Geez.

Or maybe I'm cheap.

For example, although I eat out more than 4-5 times a month, I usually only spend $20-$25 each time. The $60 meal is something I have once every other month or so. And no way am I going to spend $50-100 in bars on a single night. I'll go to dives, to happy hours, to house parties; I'll go out with rich friends; but I won't spend that much myself - not as a student.

I also spend only $1250 on rent. Don't take cabs. Limit my grocery bill to $250 a month. Etc.

(1) Your rent is amazing, congrats; (2) I can spend 20 bucks at a Nathans Hot Dog, so $50-70 meals don't seem that extravagant; (3) I did leave in NYC out of college, so I drank more then...I'd probably spend less these days; (4) I'm not sure how you spend 250 a month on groceries and eat healthily when a carton of OJ costs $5 bucks; and (5) the cab point's def smart b/c they add up fast.

[Anonymous User]

OP here.

PKSebben is getting at the heart of my question. Although I have done research and determined that my particular school simply looks at your top line earnings, assumes a certain savings rate, and deducts from your grant directly, some schools will look at what you declare as your net. Thus, if there are ways of spending now to save later, some students at other these other schools should capitalize on them.

Also, this discussion of taxes is hilarious. $30k in new york will cost you about 4k in taxes.

Any more thoughts on minimizing the effects?

[PKSebben]

OP here.

PKSebben is getting at the heart of my question. Although I have done research and determined that my particular school simply looks at your top line earnings, assumes a certain savings rate, and deducts from your grant directly, some schools will look at what you declare as your net. Thus, if there are ways of spending now to save later, some students at other these other schools should capitalize on them.

Also, this discussion of taxes is hilarious. $30k in new york will cost you about 4k in taxes.

Any more thoughts on minimizing the effects?

Anonymous -- they WITHHOLD at the higher rate. you'll get it back in your return, but you eat the ~33% taxes off the top.

[Anonymous User]

2000 in rent is ridiculous. i paid 900 in rent last summer and thought I overpaid. I lived in NYC for 14 weeks last summer on significantly less than 10k, total, and had no problem doing whatever I wanted, going out to eat 4-5 times per week, and shopping for clothes a ton. So...yeah, I have no sympathy for people who find it impossible to contemplate saving 9-10k from a 1L SA in NYC.

[Anonymous User]

OP here.

PKSebben is getting at the heart of my question. Although I have done research and determined that my particular school simply looks at your top line earnings, assumes a certain savings rate, and deducts from your grant directly, some schools will look at what you declare as your net. Thus, if there are ways of spending now to save later, some students at other these other schools should capitalize on them.

Also, this discussion of taxes is hilarious. $30k in new york will cost you about 4k in taxes.

Any more thoughts on minimizing the effects?

Anonymous -- they WITHHOLD at the higher rate. you'll get it back in your return, but you eat the ~33% taxes off the top.

PKSebben -- not if you TELL THEM NOT TO. Irrelevant either way, you still would accumulate the cash, which is the concern. Back to the topic.

[MrKappus]

OP here.

PKSebben is getting at the heart of my question. Although I have done research and determined that my particular school simply looks at your top line earnings, assumes a certain savings rate, and deducts from your grant directly, some schools will look at what you declare as your net. Thus, if there are ways of spending now to save later, some students at other these other schools should capitalize on them.

Also, this discussion of taxes is hilarious. $30k in new york will cost you about 4k in taxes.

Any more thoughts on minimizing the effects?

I apologize for derailing your thread. Your withholding will be based on a $160k. You'll get it back, but not until '12. Also, it's more like $7k, not 4, w/ 1 allowance.

Annual Earnings: $30,000.00
Weekly Gross Pay: $576.92
Federal Withholding: $54.35
Social Security: $35.77
Medicare: $8.37
New York: $21.38
NY SDI: $0.60
City Tax: $13.44
Net Pay: $443.01

paycheckcity.com

[NYAssociate]

.

[Anonymous User]

OP here.

PKSebben is getting at the heart of my question. Although I have done research and determined that my particular school simply looks at your top line earnings, assumes a certain savings rate, and deducts from your grant directly, some schools will look at what you declare as your net. Thus, if there are ways of spending now to save later, some students at other these other schools should capitalize on them.

Also, this discussion of taxes is hilarious. $30k in new york will cost you about 4k in taxes.

Any more thoughts on minimizing the effects?

I apologize for derailing your thread. Your withholding will be based on a $160k. You'll get it back, but not until '12. Also, it's more like $7k, not 4, w/ 1 allowance.

Annual Earnings: $30,000.00
Weekly Gross Pay: $576.92
Federal Withholding: $54.35
Social Security: $35.77
Medicare: $8.37
New York: $21.38
NY SDI: $0.60
City Tax: $13.44
Net Pay: $443.01

paycheckcity.com

FICA =/= taxes. Move. On.

Minimizing your reported income/assets after SA gig:

[Anonymous User]

Okay, question for everyone then ......

I have two choices.

1) Live with my parents for the summer in the NJ suburbs, have a rotten commute, but only have to pay rent at my apt near law school in another location instead of two rents (Subletting is not an option for personal reasons - dont ask why) and will probably have groceries and everything taken care of as well...also transportation costs into work every day.

OR

2) Share an apt in the city with some friends or future colleagues, have an easier commute with easier access to the firm and events, BUT pay two rents, groceries, and transportation costs in and out of the city to see friends....

Tell me what to do.

[MrKappus]

Minimizing your reported income/assets after SA gig:

Request that the firm give half your salary to pro bono causes. Problem solved.

[thechee]

You can also claim a lifetime learning credit, and get up to $2000 of tuition/loan money deducted from your tax liability, no?

[Anonymous User]

Minimizing your reported income/assets after SA gig:

Request that the firm give half your salary to pro bono causes. Problem solved.

You raise an interesting point. If you contribute to a tax-deductible account, under circumstances where your school bases your renewal on net earnings, it could be a viable option. Example:

Simplifying Assumptions:

Average Fed Tax rate: 11%
Average NY tax rate: 6%
Reduction percentage in grant over 14k in earnings (my school): 65%
Interest rate on fed loan: 7%

$30,000 in earnings
$10,000 contribution to 529 plan (for your child, for example)

$10,000 deduction under NY and Fed 529 laws
= $1,700 tax savings
= $6,500 tuition savings & $455 in one-year interest savings

After tax/interest/grant-loss cost: $1,345

And your child has a $10,000 education account.

[Kohinoor]

Couple things: (1) you'll take home about 20k of that 30k; (2) if your mkt pays $160k, your rent and CoL will be high; and (3) you are massively overestimating how much you will save from this job. It will probably be 3-4 thousand, tops. I wouldn't be worrying about it affecting fin aid. It won't.

They'll ask about your earnings over the summer not only how much you actually saved. Also, he should be able to take home the 30k.

[Anonymous User]

Couple things: (1) you'll take home about 20k of that 30k; (2) if your mkt pays $160k, your rent and CoL will be high; and (3) you are massively overestimating how much you will save from this job. It will probably be 3-4 thousand, tops. I wouldn't be worrying about it affecting fin aid. It won't.

They'll ask about your earnings over the summer not only how much you actually saved.

As a categorical answer, this fails. Its simply not true: schools allocate institutional financial aid in distinct manners.