Thirteen states may tax canceled student loans

[mystery-ak]

Thirteen states may tax canceled student loans

More than 60% of borrowers are Pell Grant recipients, which means they will have to pay the higher tax rate.

By Madeleine Hubbard

Updated: August 28, 2022 - 11:09pm

Borrowers in thirteen states who have student debt canceled under the Biden administration's plan may still be taxed hundreds of dollars next year on their forgiven loans.

President Joe Biden announced major reforms to student debt last week, including how borrowers making less than $125,000 a year (or up to $250,000 as a family) may have up to $20,000 in loans canceled for Pell Grant recipients and up to $10,000 forgiven if they did not receive a Pell Grant.

Thirteen states, including New York and Virginia, treat forgiven debt as income, which means it is subject to state taxes. This means borrowers who have their student loans forgiven may end up owing hundreds of dollars, according to an analysis published Thursday by the Tax Foundation, a nonprofit policy organization.

The Tax Foundation's Vice President of State Projects Jared Walczak said that the maximum likely tax liability would double for those who have $20,000 in debt forgiven. For two states — New York and Wisconsin — Walczak's analysis did not include the rare case in which the maximum tax amount would change for someone who may qualify for loan forgiveness based on 2020 earnings only to enter the top-income bracket this year.

more
https://justthenews.com/government/state-houses/thirteen-states-may-tax-canceled-student-loans

[EdinVA]

 
Be careful what you wish for....

[Kamaji]

[Cyber Liberty]

[DCPatriot]

... but we'll let you know for sure AFTER the mid-terms!

[DefiantMassRINO]

The good news ... college tuition will still be unaffordable and increase at a rate greater then inflation.

[mystery-ak]

REVEALED: How Americans in 13 states could be TAXED up to $1,100 for on Biden's student loan relief plan – and how the White House is facing mounting legal challenges to the new scheme

    An analysis from the Tax Foundations shows that people in 13 states could end up paying up to $1,100 in state taxes for getting their student loans forgiven
    Five of the 13 states are among those with the top 10 lowest household incomes
    The states could consider the $10,000-$20,000 in forgiveness part of an individual's income 

By Katelyn Caralle, U.S. Political Reporter For Dailymail.com

Published: 12:57 EDT, 29 August 2022 | Updated: 13:24 EDT, 29 August 2022

more
https://www.dailymail.co.uk/news/article-11157131/How-Americans-13-states-TAXED-1-100-Bidens-student-loan-relief-plan.html

[verga]

That's just a crying shame.

[Kamaji]

Whether this counts as taxable income for state income tax purposes will depend in large part on how each state starts with its definition of taxable income.  Many states start with taxable income as reported for federal purposes, and then make certain adjustments (additions and subtractions) to arrive at state taxable income.

As a result, in states that start with reported federal taxable income, if an item of income is excluded from taxable income for federal purposes, it effectively ends up being excluded for state purposes as well.  Thus, in states that follow this path, unless there is an express add-back for income from cancellation of indebtedness, the gain realized by those whose student loans are reduced are unlikely to pay state income tax on the amount of the reduction.