Right now, anyone who receives student loan forgiveness between 2021 and 2025 will not have to pay taxes on any amount of student debt forgiveness.
(RTC section 17144.7.) This provision was repealed on December 1, 2020. Existing state law excludes from gross income a student loan that is discharged due to the death or total and permanent disability of the student. This exclusion applies to loan discharges after December 31, 2018.
Generally, if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
If you qualify for forgiveness, cancellation, or discharge of the full amount of your loan, you won't have to make any more payments on that loan. If you qualify for forgiveness, cancellation, or discharge of a part of your loan, you'll need to pay back the remaining balance.
Student loan debt slows new business growth and limits consumer spending. Broad student loan debt forgiveness may help boost the national economy by making it more affordable for borrowers to participate in it.
"And if you assume there's a likelihood it's canceled, you're going to be more likely to take out more debt up front. That's going to give colleges more pricing power to raise tuition without pressure and to offer more low-value degrees."
When you receive any type of debt forgiveness for more than $600, the creditor is supposed to send you a Form 1099-C. You'll find, in box 2, an amount of tax forgiven, and you need to enter that amount on your tax return marked “other income.” The IRS generally considers forgiven debt as income for tax purposes.
The IRS considers forgiven debt to be taxable income because it is an economic benefit. This means that if your lender agrees to forgive a portion of your loan, the amount forgiven will be treated as income, and you must pay taxes on it.
The IRS recognizes certain exceptions to canceled debt rules, including gifts, bequests, inheritances, some qualified student loans, a qualified reduction in price offered by a seller, and any debt that, if paid, would have been a tax deductible item for the borrower.
You can take a tax deduction for the interest paid on student loans that you took out for yourself, your spouse, or your dependent. This benefit applies to all loans (not just federal student loans) used to pay for higher education expenses. The maximum deduction is $2,500 a year.
If a borrower dies, their federal student loans are discharged after the required proof of death is submitted. The borrower's family is not responsible for repaying the loans. A parent PLUS loan is discharged if the parent dies or if the student on whose behalf a parent obtained the loan dies.
Separately, at the state level, student loan debt forgiveness will go untaxed in most states. There are only five states currently on track to tax any forgiven student loans, including Arkansas, Indiana, North Carolina, Mississippi and Wisconsin, according to Walczak.
Public service loan forgiveness, teacher loan forgiveness, law school loan repayment assistance programs and the National Health Service Corps Loan Repayment Program are not taxable. Loan discharges for closed schools, false certification, unpaid refunds, and death and disability are considered taxable income.
In most situations, if you receive a Form 1099-C, "Cancellation of Debt," from the lender that forgave the debt, you'll have to report the amount of cancelled debt on your tax return as taxable income.
If you receive full forgiveness, it'll close your loan accounts, which can affect your credit score slightly. You'll have one fewer account on your record and the average age of your accounts could decrease.
In general, if your debt is canceled, forgiven, or discharged for less than the amount owed, the amount of the canceled debt is taxable.
Are loan amounts forgiven under Public Service Loan Forgiveness (PSLF) considered taxable by the Internal Revenue Service (IRS)? According to the IRS, student loan amounts forgiven under PSLF are not considered income for tax purposes. Learn more about the PSLF process.
A “student loan forgiveness tax bomb” happens when your loan balance is forgiven and you must pay taxes on that amount. This primarily affects borrowers on income-driven repayment plans who've made reduced payments for years.
As PSLF is a federal program, we want the federal number, not the state number. You might think it is easier to ignore the prompt to search by EIN and instead manually enter information about your employer. But one of the first things that you'll be required to enter about your employer is the EIN.
No, the government will not take your refund (for now). But before you start celebrating, here are five things you need to know about your student loan in 2024. Your student loan interest will continue to accrue.
Cancelling student loan debt may reduce unemployment by adding up to 1.5 million new jobs. Federal student loans represent 90.8% of all student loan debt, public and privately held ($1.77 trillion total).
Some who oppose student loan forgiveness view education as a private commodity that benefits the person who purchases it."
It penalizes hard-working Americans
We've already discussed how the poor and working classes are treated unfairly by this plan. But the unfairness extends to many middle class families as well who worked hard to pay off their student loans or their children's student loans.