Posted on 09/10/2022 10:02:02 PM PDT by TigerClaws
President Biden's announcement in August of up to $20,000 in broad federal student debt forgiveness likely came as a relief for millions of eligible borrowers, but it also brought with it plenty of questions.1 Fortunately, the White House later issued a press relief that answered many of these queries, including confirming that this debt relief won't be subject to the federal income tax.2
However, whether or not it will be considered income for state income tax purposes is still less certain. While some states, such as New York, have already assured residents their student debt forgiveness won't be taxed, this week California became the first state to confirm the opposite.34
Here's what to know. Key Takeaways
According to the Tax Foundation, California has confirmed it will be treating Biden's student debt forgiveness as income for state tax purposes. Although the American Rescue Plan Act exempts canceled student debt from federal income taxes, state income taxes could still be levied. Per the Tax Foundation's analysis, the following six states may also tax discharged student loans: Arkansas, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin.
Student Debt Relief & Income Taxes
Generally speaking, any taxable amount of forgiven or discharged debt is treated as ordinary income and is therefore subject to federal and (potentially) state income taxes, per Internal Revenue Service (IRS) requirements. While the American Rescue Plan Act exempts certain discharged federal, private, or educational student loans from federal income taxes until Sept 30, 2025, state governments are still able make their own decisions on how to treat forgiven debt.56
Most states either don't levy a state income tax at all or have already passed laws that at least somewhat follow the federal treatment of student loan relief. However, there is a small number of state governments who are currently on track to levy their respective income tax on the canceled educational debt.4
What makes California's decision somewhat surprising is that even though its existing statutes indicate taxability for student loan forgiveness, state consensus previously ran in the opposite direction. Nevertheless, according to the Tax Foundation, it has confirmed that discharged student loan debt will be taxed under current California law. Additionally, existing state provisions exempting student loans that were canceled as part of income-based repayment programs won't apply.47 Which States May Follow California's Lead?
According to the Tax Foundation's analysis, the following six states are currently on track to also tax student loan forgiveness: Arkansas, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin. The Tax Foundation's list previously included Massachusetts, but it has since been replaced by the Hoosier State.48
Note that, unlike California, it isn't guaranteed that these six states will actually treat student loan relief as taxable income. Should state officials take action to change existing legislature, then the final count could be even smaller by the time borrowers receive their student debt forgiveness.4
The Tax Foundation expects other states will issue guidance in the coming months on how canceled student debt will be treated.4 Given that California's decision was somewhat unexpected, residents of any state without confirmed tax treatment for Biden's student loans forgiveness would do well to periodically check with their respective state tax agency for any new announcements.
Cali has more ways of beating you out of your money than any cruise I’ve been on.
They’ll get the tax payers to pay for this never ending conga line of indoctrinated fools.
My first thought: This has to be the Bee
What a shock, what a surprise...
Ain’t going to happen. California will pass a loan forgiveness law. I guarantee it.
I don’t even understand why it’s not considered taxable income by the feds. It’s like winning a lottery ticket.
Now this is what I call ironic.
California democrats tax everything and then some.
The IRS will too. No one should be surprised by this.
RE: California democrats tax everything and then some.
Taxman by George Harrison
I’ll tax the street
If you try to sit, I’ll tax your seat
If you get too cold, I’ll tax the heat
If you take a walk, I’ll tax your feet
‘Cause I’m the taxman
Yeah, I’m the taxman
I was just telling some folks the other day “wait until the 1099 shows up” (or it’s equivalent) for their loan money.
That’s not getting that for free they’ll be paying taxes on it the following tax cycle.
The stimulus checks had to be accounted for with the IRS why wouldn’t this?
And is there any accountability for how that money is spent by the individual? I assume most people are going to blow it on something else because that’s what most people do with stimulus.
And as I was reading the other day in a comments section:
“is the government going to send me a picture of the person whose loan I’m paying back?”
“The IRS will too. No one should be surprised by this.”
I’m pretty certain that most of these “recipients” that are getting these forgiveness loans have hardly given this one bit of thought, furthermore I see a spending spree if this money isn’t tracked for its “intended purpose.”
Why are they even paying their loans off anyway? The government should be sending them this money so they can go back to school and learn to code! 😐
Has it not been common practice to report loans forgiven as taxable income? Why should this antiConstitutional BS be any different?
Should not even be a point of discussion...
This from the state that thinks it can tax my pay (and probably per diem as well) while there on TDY? I’m shocked! BTW, FU Cali, you’ll never get it.
Hasn’t gruesome Newsome announced the Caulis had a 40 billion dollar surplus? What do they need to continue robbing people?
what=why.
Taxman Fun fact...
That was Paul McCartney on lead guitar
It was taxable under current IRS rulings but the jerk in the White House declared it was not taxable as loan cancellations have always been.
Good for CA. They deserve it.
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