value of USNA education

[Don't Give Up the Ship]

On the flip side one could say it is not a scholarship; rather a job. They are joining the military ranks are receiving modest pay for their service.

True, but if the entire cost of attending a SA was considered compensation, that large unknown value would be taxable. For USNA, MIDS are paid to attend the 47month program. The USNA website calls the tuition & room/board a "Scholarship". I believe when a value of attending a SA is provided, the "Pay" is deducted (e.g. not included) in that value.

 

[jl123]

There are three numbers one sees about the cost/value of SA education:

1. The Marketing/PR value: usually about $400,000. A great number to announce at high school graduations
2. The "taxman" value: Tax laws require that in order for parents to continue to claim their child as a dependent, one of the tests is that parents must contribute more than 50% of support. As of January 2020 USMA calculated that amount to be $40,000
3. The claw back value: If you leave after committing to serve, SA's want their money back - as of 2018, USMA calculated the cost of tuition/room & board at $60,802

 

[MidCakePa]

As a USNA parent, I try to avoid this topic when talking with non-SA folks. My sense is that the number fluctuates quite a bit, depending on how hard the speaker is trying to impress the audience.

 

[BrightSide]

Is there any current number?

Looking to withdrawal part of my daughter's 529 plan and the IRS says that we need to keep this in our records to make sure that meet their guidelines.

There are always debates about whether you should withdraw money, but assuming you have done that decision making and want to withdraw money, the Comptroller has the current Cost of Education number for tax purposes. 2019 was $51,450. 2020 will not be available until May 2021.
My research tells me you may withdraw $51,450 per year from your 529 without paying the 10% penalty. You still pay tax on gains.

 

[A1Janitor]

There are three numbers one sees about the cost/value of SA education:

1. The Marketing/PR value: usually about $400,000. A great number to announce at high school graduations
2. The "taxman" value: Tax laws require that in order for parents to continue to claim their child as a dependent, one of the tests is that parents must contribute more than 50% of support. As of January 2020 USMA calculated that amount to be $40,000
3. The claw back value: If you leave after committing to serve, SA's want their money back - as of 2018, USMA calculated the cost of tuition/room & board at $60,802

I disagree with #2.

When calculating contributions- you compare e amount the parent pays vs the amount the dependent pays. Neither pay the SA.

I spoke to an IRS agent and they said either the parent or the child can take the dependent.

The truth is it only is a material difference in few cases - ie single parents that earn low enough for EIC etc.

If anyone thinks the IRS would deny a dependency exemption for SA upon audit is wrong. I have the badge number of the agent that said there would be no change on audit.

 

[BrightSide]

There are always debates about whether you should withdraw money, but assuming you have done that decision making and want to withdraw money, the Comptroller has the current Cost of Education number for tax purposes. 2019 was $51,450. 2020 will not be available until May 2021.
My research tells me you may withdraw $51,450 per year from your 529 without paying the 10% penalty. You still pay tax on gains.

Here's the letter I requested.

 

[jl123]

I disagree with #2.

When calculating contributions- you compare e amount the parent pays vs the amount the dependent pays. Neither pay the SA.

I spoke to an IRS agent and they said either the parent or the child can take the dependent.

The truth is it only is a material difference in few cases - ie single parents that earn low enough for EIC etc.

If anyone thinks the IRS would deny a dependency exemption for SA upon audit is wrong. I have the badge number of the agent that said there would be no change on audit.

Just quoting memorandum from USMA Treasurer, January 2020. Amount parent pays to support dependent vs amount dependent receives from own income and other sources (SA) is only one of several tests.

Our CPA confirmed those tests are accurate, but in our case exemption would not decrease our taxes - better to let DS take it.

 

[Dr. Strange Love]

Just quoting memorandum from USMA Treasurer, January 2020. Amount parent pays to support dependent vs amount dependent receives from own income and other sources (SA) is only one of several tests.

Our CPA confirmed those tests are accurate, but in our case exemption would not decrease our taxes - better to let DS take it.

.
I will not add to my risk of being audited.

.

 

[A1Janitor]

Just quoting memorandum from USMA Treasurer, January 2020. Amount parent pays to support dependent vs amount dependent receives from own income and other sources (SA) is only one of several tests.

Our CPA confirmed those tests are accurate, but in our case exemption would not decrease our taxes - better to let DS take it.

The IRS specifically told me the worksheets calculate only funds provided by student vs provided by parents. Payments by third parties like SA or scholarships etc don’t count.

 

[jl123]

The IRS specifically told me the worksheets calculate only funds provided by student vs provided by parents. Payments by third parties like SA or scholarships etc don’t count.

I agree with your interpretation - that's the way I would read IRS Pub 17. Not sure why USMA words that letter the way they do or if there are some nuances that define what a scholarship versus what SA's provide.

In practice the IRS isn't going to quibble over an SA parent claiming the dependent - many parents do.

A problem only occurs when both the parent and child claim the deduction.

 

[A1Janitor]

I agree with your interpretation - that's the way I would read IRS Pub 17. Not sure why USMA words that letter the way they do or if there are some nuances that define what a scholarship versus what SA's provide.

In practice the IRS isn't going to quibble over an SA parent claiming the dependent - many parents do.

A problem only occurs when both the parent and child claim the deduction.

It is my interpretation - but it was confirmed by IRS.

With efiling now - only one person can claim the dependent - so the first one to it wins. The second one has to fight for it.

I have been involved with divorced parents who tried to file the first day to take a dependent they weren’t entitled to.

 

[justme]

I agree with your interpretation - that's the way I would read IRS Pub 17. Not sure why USMA words that letter the way they do or if there are some nuances that define what a scholarship versus what SA's provide.

In practice the IRS isn't going to quibble over an SA parent claiming the dependent - many parents do.

Hopefully, they don't quibble with us interpreting it as NOT able to claim them, either.

 

[A1Janitor]

Hopefully, they don't quibble with us interpreting it as NOT able to claim them, either.

Why would they? In almost all cases, either would be entitled to claim it. And generally speaking, when the child claims it the IRS makes more money. They don’t audit to pay more money back.

The question isn’t really a tax question. It’s how parents view the dependency - which shapes their decision.

 

[brewmeist]

I am not going to debate the dependent definition because it really doesn't matter. Everyone does their own taxes, and shouldn't take tax advice on an anonymous forum. I personally did not claim my son as a dependent. And he is very glad that I didn't. He now has 2 stimulus checks.

 

[lovetheheat]

The whole dependent issue is a bigger tax issue in 2020 due to all the stimulus money given away by fed govt. I would argue that 3/c-1/c Mids will probably be eligible for stimulus payments credit if they claim themselves as dependent. To me it's pretty clear parents aren't providing 1/2 their support. 4/c, to me, is a more complicated issue as most kids were home 1/2 of year.
Looks like this will also play out in 2021 as 46 is intent in giving even more away.

 

[cb7893]

What is the current value of a USNA education?
This figure is needed for my school's guidance department.
From posts years ago, I see 350-425k as a common range.
Is there a more current number given by USNA or cited by the media?

If you have to ask, then dump your social media for anything other than sharing family friendly photos and follow @Skipper07 ’s advice about whom you hang around with.