Is Your State Set To Tax Federal Student Loan Forgiveness?
There are potentially 13 states that could treat President Joe Biden's student loan forgiveness plan as taxable income for borrowers. Now, it's very much possible that some of these states can revise their tax penalties and rules before taxes are due the following year in Spring. The following states that can potentially face tax penalties are Arkansas, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Mississippi, New York, Pennsylvania, South Carolina, Virginia, West Virginia, and Wisconsin.
President Biden's Loan Forgiveness Plan
On Wednesday, August 24, 2022, Biden announced details regarding student loan forgiveness. If you have federal student loans and earn less than $125,000 (or $250,000 for married couples), you can qualify for up to $10,000 in student loan forgiveness. Federal Pell Grants, unlike a loan, don't have to be repaid. They're usually awarded to undergraduate students who demonstrate exceptional financial need and have yet earned a bachelor's, graduate, or professional degree. If you had a Pell Grant, you could receive up to $20,000 in student loan forgiveness.
Maximum Possible Tax Liability For Each Of The 13 States
Borrowers who receive loan forgiveness of $10,000 in student loans may be subject to the following tax penalties:
New York: $685
South Carolina: $700
West Virginia: $650