PAYE Question

[StaystrongDO]

Hey guys!

Quick question. So for PAYE, I know it used to be that you could get away with a 0.00 payment for the first year, but now that is not the case. Is it now based on my yearly salary, or would my first calculation be based on what I will make the rest of 2016, roughly half of my yearly salary?

I hope my question makes sense. Thanks in advance!

-StaystrongDO

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[mvenus929]

Most people apply to PAYE in November of their first year of residency. The application asks for a tax return from the previous year. If you filed one and are single, your income is zero. The application, though, asks if your income is significantly different. The question is intended to give those who have lost a job, or taken a cut in income, a way to express their current income level. If you select yes, your lender will request some sort of documentation for what your actual income is. Usually, the easiest way to do that is to give them a pay-stub, so your monthly payment would be based on your total PGY-1 salary. Ditto for when you reapply in your PGY-2 year.

 

[RangerBob]

Hey guys!

Quick question. So for PAYE, I know it used to be that you could get away with a 0.00 payment for the first year, but now that is not the case. Is it now based on my yearly salary, or would my first calculation be based on what I will make the rest of 2016, roughly half of my yearly salary?

I hope my question makes sense. Thanks in advance!

-StaystrongDO

The above poster nailed it--it's based on your yearly salary, which you typically show by sending them a paystub and stating how often you get paid.

 

[StaystrongDO]

Awesome, thanks for the information guys!

 

[White Coat Money]

After the first year, your annual income recertification is based off your tax returns. So it would be beneficial for you to wait as late as possible to re-certify your income if you had a pay increase. If for some reason you had a pay decrease, then you should re-certify your income as early as possible.

 

[JumpingThroughHoops]

Hey guys!

Quick question. So for PAYE, I know it used to be that you could get away with a 0.00 payment for the first year, but now that is not the case. Is it now based on my yearly salary, or would my first calculation be based on what I will make the rest of 2016, roughly half of my yearly salary?

I hope my question makes sense. Thanks in advance!

-StaystrongDO

Most people apply to PAYE in November of their first year of residency. The application asks for a tax return from the previous year. If you filed one and are single, your income is zero. The application, though, asks if your income is significantly different. The question is intended to give those who have lost a job, or taken a cut in income, a way to express their current income level. If you select yes, your lender will request some sort of documentation for what your actual income is. Usually, the easiest way to do that is to give them a pay-stub, so your monthly payment would be based on your total PGY-1 salary. Ditto for when you reapply in your PGY-2 year.

The above poster nailed it--it's based on your yearly salary, which you typically show by sending them a paystub and stating how often you get paid.

Do you have to select "yes" to that question? I was told that you can just base it off your previous years tax return. I was told over the phone by a representative from my lender that it was a "subjective question" on whether or not your income has changed significantly. Is there some law somewhere that I am otherwise unaware of?

I guess in other words what is the advantage of giving them the pay stub?

 

[RangerBob]

Do you have to select "yes" to that question? I was told that you can just base it off your previous years tax return. I was told over the phone by a representative from my lender that it was a "subjective question" on whether or not your income has changed significantly. Is there some law somewhere that I am otherwise unaware of?

I guess in other words what is the advantage of giving them the pay stub?

You'll get a different answer from your lender every time when you ask that question--some told me to answer "yes" if my tax return and current salary differed by more than $4k, some if there's any difference, and some said it's totally up to me. It's a bit annoying. I went ahead and submitted my paystub--I figured why risk it (in case they check tax returns and your IBR applications really closely for PSLF), and I was able to afford the couple hundred buck per month.

Many lenders now request paystubs for your first IBR application, as they generally realize anyone that was in school wasn't making much/any income, and 6 months after graduating may have well-paying jobs.

 

[JumpingThroughHoops]

You'll get a different answer from your lender every time when you ask that question--some told me to answer "yes" if my tax return and current salary differed by more than $4k, some if there's any difference, and some said it's totally up to me. It's a bit annoying. I went ahead and submitted my paystub--I figured why risk it (in case they check tax returns and your IBR applications really closely for PSLF), and I was able to afford the couple hundred buck per month.

Many lenders now request paystubs for your first IBR application, as they generally realize anyone that was in school wasn't making much/any income, and 6 months after graduating may have well-paying jobs.

Legally if your lender simply accepts your previous year's tax return, what is the risk?

If you consolidate right off the bat as soon as you graduate wouldn't you lose your grace period and thus have no pay stubs to provide?

 

[RangerBob]

Legally if your lender simply accepts your previous year's tax return, what is the risk?

If you consolidate right off the bat as soon as you graduate wouldn't you lose your grace period and thus have no pay stubs to provide?

I have no idea what the legal risks would be--I don't even know if there are any. I just didn't want to lie on a form I was submitting to the government. I felt my income was substantially different ($50,000 vs $0), so I said yes. But I've never heard of anyone getting into any kind of trouble for answering "no" to the question when they have a substantial difference in income.

Yes--if you consolidate right off the bat (after graduation, but before starting residency) then you will lose your grace period (really just ~4 months of it--it takes about 2-3 months to process the consolidation loan which you could view as a sort of grace period) and since you fill our your IBR/PAYE/REPAYE application when you apply for consolidation, then you would legitimately have a $0 income. But there are a lot of downsides to consolidation--there are a couple threads that explain the pros/cons more in detail.

Most people that consolidate off the bat are doing so to get up to 6 extra PSLF-eligible payments under their belt, since it's the only way to start repayment prior to the end of your grace period (you can't waive your grace period--you can make payments while in grace, but not PSLF-eligible payments)

 

[White Coat Money]

I have no idea what the legal risks would be--I don't even know if there are any. I just didn't want to lie on a form I was submitting to the government. I felt my income was substantially different ($50,000 vs $0), so I said yes. But I've never heard of anyone getting into any kind of trouble for answering "no" to the question when they have a substantial difference in income.

Yes--if you consolidate right off the bat (after graduation, but before starting residency) then you will lose your grace period (really just ~4 months of it--it takes about 2-3 months to process the consolidation loan which you could view as a sort of grace period) and since you fill our your IBR/PAYE/REPAYE application when you apply for consolidation, then you would legitimately have a $0 income. But there are a lot of downsides to consolidation--there are a couple threads that explain the pros/cons more in detail.

Most people that consolidate off the bat are doing so to get up to 6 extra PSLF-eligible payments under their belt, since it's the only way to start repayment prior to the end of your grace period (you can't waive your grace period--you can make payments while in grace, but not PSLF-eligible payments)

I applaud you on your commitment to telling the truth. Too often do we lie in medicine for money - just think of all the ortho notes you've read with a meticulously completed H&P.