Coworker in building says they don't want to take a promotion because the increase in salary will negatively impact the amount of aid their child will receive for college. TBH, I'm not completely familiar with the FAFSA process but this seems like a bad idea for the long term.
The FAFSA formulas essentially work like a tax. You get to exclude some income, like the standard deduction and exemption. Then anything over that amount is called the Adjusted Available Income (AAI) and it gets "taxed" along a progressive scale towards your Expected Family Contribution (EFC). The top "tax" rate on income is 47%. So for a parent whose kid is currently eligible for financial aid, in the 25% federal tax bracket, and let's say a 6% state income tax bracket, who also falls into this top rate on AAI for FAFSA (definitely feasible for these brackets to coincide, as an AAI of $32k+ falls into the 47% bracket for EFC), will experience an effective marginal "tax rate" of 85.65% (I added 7.65% for FICA - that's SS and Medicare taxes). So the effective marginal "tax" rate isn't over 100%, but it's getting damn close.
Just for fun, it is actually feasible for an increase in income to actually decrease
aid under two scenarios for dependent students. Neither of these are likely to apply to your coworker.
1) If a dependent student's parents could have filed a 1040A or 1040EZ, or didn't have to file any taxes, and their combined income was less than $50k, then the student qualifies for the simplified EFC calculation. Under this simplified EFC calculation, all
assets are excluded from the EFC calculation.
2) If a dependent student's parents meet the above conditions, in addition to having an income less than $25k, then the EFC is automatically zero
These two exceptions are GREAT news for Mustachians who retire before their kids go to college.
Keep your total income under $50k and all of your assets get excluded from the EFC calculation. Your assets are "taxed" at ~12% (there's a "standard deduction here that varies by age and stuff but it's not that big by Mustachian portfolio standards - up to $30k at most). So if you've got $1M in assets, it would normally add $120k to the EFC, but that portion gets dropped to zero! (You still have an EFC from your income).
Keep your total income under $25k and your EFC is zero!