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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:

Arkansas: $550

Hawaii: $1,100

Idaho: $600

Kentucky: $500

Massachusetts: $500

Minnesota: $985

Mississippi: $500

New York: $685

Pennsylvania: $307

South Carolina: $700

Virginia: $575

West Virginia: $650

Wisconsin: $530

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