President Joe Biden’s student loan forgiveness plan could lift crushing debt burdens from millions of borrowers. But in some states, the tax man may demand a cut of that relief.
Although having $10,000 or $20,000 in loan payments eliminated will be a boon over the long term to borrowers who qualify, those in the affected states might be required to declare that as income. Depending on a state’s tax rates, the taxpayer’s other income and the deductions and exemptions they’re able to claim, that could add up to several hundred extra tax dollars that they’ll owe.
Spokespeople for tax agencies in several states — including Virginia, Idaho, New York, West Virginia, Pennsylvania and Kentucky — told The Associated Press that their states definitely won’t tax student loans forgiven under Biden’s program. Revenue officials in a few other states said they needed to do more research to know.
Newman, 38, went into debt to pay for graduate school. She had already set herself up for relief under the federal Public Service Loan Forgiveness program, though that requires five more years of teaching on top of the five she already taught at the University of Louisiana Monroe. Biden’s program would cut $10,000 off her debt load when it takes effect, but under existing Mississippi tax law, the relief won’t come free.
“It’s not a huge burden for me, but it could be for a lot of other people, which is what I’m worried about, especially if it’s unexpected, and I think a lot of people don’t realize that,” Newman said. Any relief in states that would tax the forgiven debt would have to come from their Legislatures. Leaders of the Minnesota Legislature and Democratic Gov. Tim Walz have indicated in recent media interviews that there’s broad support for a fix, which could come during the 2023 session, or even earlier on the
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