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Tags: states | debt forgiveness | student loan | taxes

Think Tank: People in 13 States May Be Taxed on Forgiven Student Loan Debt

Think Tank: People in 13 States May Be Taxed on Forgiven Student Loan Debt

Student loan borrowers stage a rally on Thursday in front of the White House to celebrate President Joe Biden's cancellation of student loan debt and to begin the fight to cancel any remaining debt on such loans. (Paul Morigi/Getty Images for We the 45m)

By    |   Friday, 26 August 2022 06:05 PM EDT

Americans in 13 states may need to pay taxes on their forgiven student loan debt, according to an analysis by the Tax Foundation, a Washington think tank.

More than 45 million people in the U.S. collectively owe the government $1.6 trillion in student loan debt relief, a figure that will be significantly reduced once President Joe Biden's plan allowing borrowers who earn less than $125,000 per year to be eligible for up to $20,000 in debt relief goes into action.

Biden announced the plan on Thursday. An application for the program should be available by the end of the year, although in some instances borrowers will notice an immediate change in their balance made by the Department of Education.

Jared Walczak, vice president of state projects for the Center for State Tax Policy at Tax Foundation, said in a blog post Thursday that student loan debt forgiveness could be considered a taxable event in 13 states: Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia and Wisconsin.

Walczak said a discharge of indebtedness counts as income and is taxable.

In the American Rescue Plan Act, signed by Biden in March 2021, ''the forgiveness of student loan debt between 2021 and 2025 does not count toward federal taxable income,'' Walczak said.

''States which follow the federal treatment here will likewise exclude debt forgiveness from their own state income tax bases. But, for a variety of reasons, not every state does that. There are at least six relevant interactions with the Internal Revenue Code (IRC) for purposes of the treatment of student loan debt [cancellation].''

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Americans in 13 states may need to pay taxes on their forgiven student loan debt, according to an analysis by the Tax Foundation, a Washington think tank.
states, debt forgiveness, student loan, taxes
270
2022-05-26
Friday, 26 August 2022 06:05 PM
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