The Gift of Education from Grandparents
Grandparents want nothing more than to support the development of their grandchildren. And as education is one of the most meaningful parts of a child’s development, it is also one of the most common areas grandparents choose to help support their grandchildren financially.
The unfortunate reality is that while public K-12 education is still technically cost-free, the price of private K-12 has been on the rise.
The average cost for a year of private elementary school is $7,770 and the average cost for a year of private high school is $13,020.
And following high school graduation, the costs get even higher for both public and private colleges:
The price of public college tuition in the US has more than has more than doubled since 1972, while private college tuition has nearly tripled.
For grandparents who want to support the academics of their grandchildren, the rising cost of education means that it is more important than ever to maximize the impact of your financial contributions. Here’s what you should know about the taxation of educational support.
The Gift Tax (and exclusions)
Under IRS rules, each grandparent is allowed to give $15,000 to each of their grandchildren without incurring any taxes.
For example let’s say grandpa and grandma have three grandchildren, they could give a total of $30,000 ($15,000 from each grandparent) to each of the grandchildren (amounting to a total of $90,000 in gifts) without any tax implications.
If the grandparents wanted to contribute more, say the full average cost of private college tuition ($46,950), they would incur a tax liability by gifting the money directly to a grandchild.
However, if the grandparents paid the tuition directly to the school, there is an education exclusion -- meaning that they would not incur a tax liability.
Using Finli for the education exclusion
By using Finli, parents can upload their children’s private school or college tuition and grandparents can contribute directly to those expenses tax-free. Moreover, Finli creates a record of the transaction so that grandparents can prove that their contributions went directly to the schools, ensuring that they aren’t taxed (and making life much easier for their accountants come tax time).