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HomeTop NewsYou won’t have to pay federal taxes on student debt relief, but states could tax it as income

You won’t have to pay federal taxes on student debt relief, but states could tax it as income

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Student loan borrowers who make less than $125,000 per year will have between $10,000 and $20,000 of federal student loan debt forgiven , President Joe Biden announced on Aug. 24. Since the announcement, VERIFY has received many questions from readers about what exactly that means for the American student loan borrower.

Several of those questions have been about federal and state taxes, such as one from viewer Loralea, who asked if their state would tax loan forgiveness. Will people who receive student loan forgiveness have to pay federal or state taxes? People will not pay federal taxes on student loan forgiveness, but states could decide to tax money forgiven by the federal government as income. So far, no states have announced that they will tax forgiveness, and at least one has said it will not.

Federal taxes The American Rescue Plan Act (ARPA) of 2021 was passed in March 2021 as part of a COVID-19 relief package that stipulated any debt forgiven from Dec. 21, 2020 to Jan. 1, 2026 will not count as income.

This means eligible borrowers don’t have to pay federal taxes on any student loan forgiveness through Dec. 31, 2025, Andrew Lautz, National Taxpayers Union Foundation’s director of federal policy, told VERIFY. What happens after that is unknown at this time because we don’t know what decisions Congress and future presidents will make years from now, Lautz said.

State taxes Whether states will tax loan forgiveness depends on what state lawmakers decide, Lautz told VERIFY. No states have so far announced that they will tax the forgiveness, and at least one state has said it will not tax it. “I do anticipate that a lot of states will follow the federal government’s lead in ensuring that debt cancellation is not taxable, but it will depend from state to state,” Lautz said.

States that tax income could theoretically charge borrowers state income taxes on forgiveness, but some already agreed to exclude student loan forgiveness from taxation. Oregon, for example, will follow federal tax law regarding taxable income on personal income tax returns, which means Oregon borrowers won’t be subject to state tax on the student loan amount forgiven, Robin Maxey, a spokesperson for the Oregon Department of Revenue told VERIFY. On Aug.

25, a day after Biden’s student loan forgiveness plan was announced, the Tax Foundation published a list of possible states that might tax student loan debt cancellation, unless those states change their policies in the meantime. The projected maximum tax liability for borrowers in those states ranges between $307 and $1,100 for $10,000 in student loan forgiveness. “In the coming weeks and months, we are likely to see states issue guidance on the treatment of discharged student loan debt,” the Tax Foundation says.

To check for updates on if your state will tax student loan forgiveness amounts, check for updates with your local Department of Revenues. Editor’s note: This article will be updated as states announce new tax policies related to student loan forgiveness. If you have questions about student loan forgiveness eligibility, read our Fast Facts.

The VERIFY team works to separate fact from fiction so that you can understand what is true and false. Please consider subscribing to our daily newsletter , text alerts and our YouTube channel . You can also follow us on Snapchat , Twitter , Instagram , Facebook and TikTok .

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From: wfaa
URL: https://www.wfaa.com/article/news/verify/education-verify/state-federal-taxes-on-student-debt-relief-fact-check/536-9ba4fcf0-734a-40d9-bad8-7d7e38a478c9

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