You may owe taxes for federal student loan forgiveness in these states


Marko Geber | DigitalVision | Getty Images

If you’re one of the millions of Americans expecting student loan forgiveness, you won’t owe federal taxes. But that doesn’t mean you’re off the hook at the state level.

Indiana is the latest to confirm forgiveness will trigger state income taxes, and some borrowers may owe county levies on top of state income tax.

“As this law is clearly defined, there is no need for additional administrative rules,” a spokesperson with Indiana’s Department of Revenue said. “Any legislative change must come from the general assembly.”

More from Personal Finance:
How to save 20% on airfare — if you don’t mind taking some risks
GOP could bring a legal challenge to student loan forgiveness
How marketplace health enrollees can claim a share of $603 million in rebates

A provision from the American Rescue Plan of 2021 makes student loan forgiveness federally tax-free through 2025, and state income taxes depend on whether and when there’s state conformity with federal tax laws.

Last week, Mississippi’s Department of Revenue confirmed with CNBC that student loan forgiveness will be taxable, and the North Carolina Department of Revenue shared the same in a press release.

Of course, with state legislation in flux, it’s still possible these tax policies, among others, may change.

Taxation is possible in other states

In addition to Indiana, Mississippi and North Carolina, state-level taxation also may be possible in Arkansas, California, Minnesota and Wisconsin, according to a preliminary analysis from the Tax Foundation.  

The organization initially estimated that 13 states may tax student loan forgiveness and has revised projections with updates.

It now projects seven states — Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin — may tax student loan forgiveness.

Taxing forgiveness isn’t likely in Massachusetts, but the state hasn’t shared an official determination.

Currently, here’s a breakdown of the status in pending states.

Arkansas: Likely taxable 

Although the Arkansas Department of Finance and Administration hasn’t issued a formal decision, a determination may arrive in the coming days, a spokesperson told CNBC.

However, the state doesn’t conform to the federal code “in any significant way,” according to the Tax Foundation, making forgiven student debt likely to be taxable without state action.

California: Possibly taxable

California may also tax student loan forgiveness, depending on how the Department of Education administers the program, a spokesperson from the state’s Franchise Tax Board told CNBC.

Massachusetts: Likely not taxable  

While the Massachusetts Department of Revenue hasn’t made a final determination, state Rep. Steve Owens, a Democrat, said in a tweet that student loan forgiveness won’t be taxable.

What’s more, the state has already issued guidance on conforming to the American Rescue Plan’s exclusion, Owens said in a separate tweet.  

Mississippi: Taxable 

The Mississippi Department of Revenue has confirmed with CNBC that student loan forgiveness will be taxable at the state level.

North Carolina: Taxable 

Student loan forgiveness is “currently considered taxable income,” according to a press release from the North Carolina Department of Revenue. However, the department is monitoring legislation changes from the state’s General Assembly.

Wisconsin: Possibly taxable

With the state tax law conforming before the American Rescue Plan Act, it’s possible Wisconsin may tax student loan forgiveness, according to the Tax Foundation. The Wisconsin Department of Revenue hadn’t responded to a request for comment by press time.





Source link

Denial of responsibility! planetcirculate is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.