Some States Could Tax Biden’s Student Loan Debt Relief

President Joe Biden’s student loan forgiveness plan could lift crushing debt burdens from millions of borrowers, but the tax man may demand a cut of the relief in some states.

That’s because some states tax forgiven debt as income, which means borrowers who are still paying down student loans could owe taxes on as much as $10,000 or even $20,000 that was taken off their bill. In Mississippi, Minnesota, Wisconsin, Arkansas and North Carolina, forgiven student loans will be subject to state income taxes unless they change their laws to conform with a federal tax exemption for student loans, according to a tally by the Tax Foundation, a Washington, D.C.-based think tank.

More than 40 million Americans could see their student loan debt cut or eliminated under the forgiveness plan Biden announced late last month. The president is erasing $10,000 in federal student loan debt for individuals with incomes below $125,000 a year, or households that earn less than $250,000. He’s canceling an additional $10,000 for those who also used federal Pell Grants to pay for college. But it only a pplies to those whose loans were paid out before July 1, which leaves out curre nt high school seniors and students who will follow them.

Although having $10,000 or $20,000 in loan payments eliminated will be a boon over the long term to borrowers who qualify, those in the affected states might be required to declare that as income. Depending on a state’s tax rates, the taxpayer’s other income and the deductions and exemptions they’re able to claim, that could add up to several hundred extra tax dollars that they’ll owe.

Spokespeople for tax agencies in several states — including Virginia, Idaho, New York, West Virginia, Pennsylvania and Kentucky — told The Associated Press that their states definitely won’t tax student loans forgiven under Biden’s program. Revenue officials in a few other states said they needed to do more research to know. (NEWSMAX)