What is the best financial/tax situation for a family with a kid on the way?

July 2, 2008 6:27 AM

What is the best financial/tax situation for us? Kid on way, financial aid eligibility concerns.

Me: grad student for 2 more years, on a teaching assistantship (this covers tuition, fees, health insurance, and gives me a $1600/mo. stipend) and with some student loans on top (less than $10k/year). I also work in the summers, but make less than $5k. I also receive research grants sometimes ($5k-$15k). In 2008, I will only have been in the country for 2 months and will have an income of less than $5k. In 2009 and 2010 I will be be back on the normal track with $1600/mo. and some loans with perhaps 2-3 months of a travel grant of ~$6k.

Him: working person making a good salary (floating around 6 figures)

New factor: baby on the way at end of year (will be on Dad's insurance and Dad's company covers childcare)

The way that we see it, here are our financial options:

(1) Stay unmarried, he claims baby on his taxes.

(2) Stay unmarried, I claim the baby on my taxes. (But would this screw up my student loan/financial aid eligibility by making me look richer?)

(3) Marry and claim kid together. (Again, would this screw up my student loan/financial aid eligibility?)

posted by anonymous to work & money (4 comments total)

Personally, I feel like this decision should be less about the finances. Baby + marriage is a big deal that should be considered first with the financial implications coming afterwards. Also, you don't mention what country you're in- I'll assume US.

Most likely this year you won't make enough money to have to pay taxes on, so you claiming the baby will not benefit you this year.

As far as screwing up your student loan/ financial aid - I believe that your teaching assistantship shouldn't depend on your total income, but I don't know for sure.
posted by ets960 at 6:46 AM on July 2

Surely your DGS or the Assistant-To-DGS who knows all and sees all will know the answer to the financial-aid parts.

That is, ask someone whether or not your aid (apart from loans) is dependent on your income. In most graduate programs, it is not.

As far as taxes go, it's very simple:

Do both of your taxes with you unmarried and him claiming the baby.
Do both of your taxes with you unmarried and you claiming the baby.
Do your taxes together married.

One of these will have the smallest sum.
posted by ROU_Xenophobe at 8:10 AM on July 2

Personally, I feel like this decision should be less about the finances. Baby + marriage is a big deal that should be considered first with the financial implications coming afterwards.

I don't believe the OP asked for your personal opinions on marriage.

Make a appointment with a financial/tax advisor, they should be able to work all this out for you if you can't work it out yourself (I have no idea how complex US tax forms are)
posted by missmagenta at 8:15 AM on July 2

Definitely talk to people at your university to find out the impact of marriage/husband's income on your need-based aid. Pretty sure that having a dependent and ensuing deductions and other benefits shouldn't make you any less eligible for aid. If you don't marry, my guess is that a dependent will cut his taxes by more since he pays more to begin with. Also keep in mind that you can marry and file separately. But I'm no sort of tax professional, so please do consult one.

Even if you're not ready to tell your advisor about the pregnancy, you could do some research into the maternity leave policy for grad students at your school -- maybe an ombudsman or graduate women's assoc could help you with this? At my school, there is some sort of paid leave, but if both parents are students only the primary caregiver can take it. I know this wasn't in your question, but it could affect the amount of income you expect, and the people who know about this might have other good info for you.
posted by ecsh at 10:29 AM on July 2