Hey
I know, this is the last thing you may want to hear right now. But the Tax Foundation is concerned the states listed below will want you to pay tax on the
canceled student debt.
According to the Tax Foundation’s
preliminary findings, a maximum state liability of roughly $300 to $1,100, could apply in the following states.
- Arkansas,
Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin
Biden’s student loan forgiveness plan will see most borrowers who make less than $125,000 per year ($250,000 for married couples filing together) qualifying for $10,000 of forgiveness.
Pell Grant recipients will see the cancellation of up to $20,000.
Here is a potential source of confusion.
The American Rescue Plan of 2021 made student loan forgiveness federally tax-free through 2025. This law also covers
Biden’s forgiveness.
So, you could be wondering how these states could tax your forgiven debt. You are right to be confused because state tax law is supposed to conform to Federal Tax law.
However, some discrepancies may exist in implementation, including the timelines, etc. That is why it still isn’t a perfect time to assume your forgiven debt won’t be taxed.
What should you do if you are affected?
Right now, your best option is to stay in touch with a tax professional like myself because we are the first to know of any material changes in these laws.
You can also hire me to prepare your 2022 tax returns. It will be easy for you because you will no longer have to worry about any of
this as I will be reading tax updates on your behalf and making sure you file taxes correctly.
To hire me to be your tax professional, click this link to book an appointment.
