TAXES & STUDENT LOAN FORGIVENESS

Now that the current federal administration’s plan for broad-based student loan forgiveness of up to $20,000 seems to be much closer to finalization. It raises the question for many who may qualify for this program, will the forgiven loan amount be taxable income. As generally forgiven or cancelled debt is treated as taxable income.

However, under the American Rescue Plan Act, language was included that said any sort of student debt relief in the next few years would not be taxable to federal level. That leaves the question of, but could it effect my state taxes?

While many states will follow the federal lead and not treat forgiven student loans as taxable income, some could take a different path. At this time, it appears there remains several states that still have tax code in place that would result in the treatment of forgiven student loans as income. Some of these states such as California, Minnesota and North Carolina, recent news shows they are making the reviewing of this a top priority for their state legislatures. Given we are based out of California, I can speak in more detail about what we are hearing. Several of California’s top legislatures have stated “One way or another, California will not tax the federal student debt relief”

Whereas there still are unanswered questions regarding whether the forgiven loan debt will be fully non-taxable state wise as it is federally, this is definitely good information to start with. And as the next tax season rapidly approaches something the Tax Man’s says worth keeping an eye out for. In the meantime, if you have student loans, please investigate seeing if you qualify for this program. You can do this by going to the following link;