Tuesday, February 3, 2009

Who is HENRY?

H-E-N-R-Y = High Earner Not Rich Yet

Well, it all depends on your definition of high earner because I would definitely not put myself anywhere near there. But in either case, this isn't about me. This is about all the folks who graduated from college with lots of student loans and a "high paying job." What exactly is a high paying job? If you ask the IRS that would be anything above $55K which is where they start phasing out single filers for deducting student loans. The hard cut-off is $70K.

So for example, you finish college after busting your rump for 4-5 years and now have $32K worth of student loans to show for it. But you're one of the lucky ones, you managed to find a job that is paying you $60K to start in the always-expensive-cost-of-living Northeast.

Funny thing though is that after hearing your whole life about student loan tax deductions you realize that at your salary level this doesn't amount to much. You don't worry about it though as you put your nose to the grindstone and try to be the best employee ever. Three years later due to well earned raises you cross the $70K cut-off limit. You think no-biggie since you never really got much back from that measly deduction anyway. However, it still is a painful reminder to get that letter from your loan provider pointing out how much you paid in interest the previous year. I mean, those bastards are just rubbing it in your face that you won't be able to deduct any of that interest paid.

Two years later, you start thinking about buying a home because it is the prudent thing to do and there are no income limits on the tax dedcutions for interest paid on your home. But in the Northeast, your 5 years of prudent savings doesn't even look like it could be 10% of the selling price of the homes. Yeah, even in this downturn. And you wanted to put 20% down because you heard of all the no-money-little-money down horror stories. But wait, what about that news clipping you saw that spoke about an interest free $7500 loan from the Gov now expanding to possibly a $7500 grant (via tax credit) and you think, "Cut me a slice of that pie!" So as a good citizen you go to their website and read the fine print which clearly states that earners above $75K are phased out until a hard cut-off at $95K. So, using your salary numbers you do the number crunching and then it hits you.

HENRY, he is I and I am him.


Alfredo said...

In reality, you will still be a high earner. A lot of people need to understand that $7500 grant (tax credit) that the government is giving to first time home buyers. You get the tax break but in reality you pay back the $7500 over a few years. What ends up happening is it helps to lower your income over the next 5 or 6 years until the $7500 is paid back. So, in reality you really isn't getting a free and clear $7500 tax break. The government gives it to you and get it repaid back to them with a possible small interest. In the case of the high earner looking for tax breaks beside their student loan, they should probably create company on the side and use it as a write off tool.

Troy said...

That was initially. Like I said, now expanding to a $7500 grant via tax credit. What I should have mentioned was this is part of stimulus bill that will most likely pass. And there are even more changes. It is now $15K and no income limits. Go figure...even I haven't read all the fine print yet.

Troy said...

Now down to $8K and is expected to pass before President's Day.

Troy said...

Final bill passed and the income limits ($75K single, $150K couple)are back. But it is a tax credit ($8K) for homeowners who buy a home in 2009.