These 5 states could tax student loan forgiveness
Student loan cancellation, Pres. Biden to cancel up to $20,000 | LiveNOW from FOX
More than 40 million Americans could see their student loan debt reduced — and in many cases eliminated — under the long-awaited forgiveness plan President Joe Biden announced Wednesday, a historic but politically divisive move in the run-up to the midterm elections.
Mississippi is the first state to confirm that residents there will be taxed on student loan forgiveness, and four other states could follow suit.
President Biden’s student loan forgiveness plan would eliminate $10,000 in federal student loan debt for those with incomes below $125,000 a year, or households that earn less than $250,000. It would also cancel an additional $10,000 for those who received federal Pell Grants to attend college.
Typically, debt forgiveness is considered taxable income under IRS tax code, but the American Rescue Plan exempts student loan forgiveness as taxable income from 2021-2025. According to The Tax Foundation, a tax policy think tank, most states fall in line with IRS code, but some states don’t.
Of the states that don’t conform to federal law, at least six — New York, Pennsylvania, Kentucky, Virginia, Hawaii and Idaho — have announced plans to exempt the new student loan forgiveness from taxation, Bloomberg reports.
Four others — Arkansas, Minnesota, North Carolina and Wisconsin — "still appear to be on track to tax student loan debt forgiveness," Jared Walczak, vice president of state projects at the Tax Foundation, said in a blog post.
RELATED: Broad support emerges for wiping away Minnesota tax on student loan relief
But Walczak cautions that the list could get even smaller as more states issue guidance in coming weeks and months.
Student loan forgiveness timeline
Biden’s plan will almost certainly be challenged in court. If it survives legal scrutiny, applications for student loan relief will be available in early October. It will take four-six weeks for the forgiveness to be applied.
Borrowers who want debt relief applied to their balances before the student loan payment pause expires Dec. 31 should apply by Nov. 15. Applications will still be accepted after the moratorium ends.
You can go to StudentAid.gov and sign up to be notified when the application goes live.
RELATED: What kind of student loan do I have? Your student loan relief questions answered
Not everyone who is eligible for loan forgiveness under Biden’s plan will have to fill out an application.
The Education Department already has income data for about eight million people, or roughly 20% of borrowers, officials said. If those people qualify based on the income on file, they’ll get relief automatically.
It’s unclear right now how a borrower can determine if the Department of Education has that information.