President Biden recently announced a student loan forgiveness program that could mean up to $20,000 of your loans are forgiven. There are a few things to keep in mind if you are eligible for this program, especially as it relates to your tax returns.
The program covers up to $10,000 in federal student loan forgiveness for most borrowers who qualify. In order to meet these requirements, your Adjusted Gross Income in 2020 or 2021 must be less than $125,000 if you file as an individual or under $250,000 if you are married and file a joint return or if you are the head of a household. Your income for 2022 cannot be used to determine your eligibility and private loans are not affected. If you have previously refinanced your student loans, your eligibility may also be affected. This announcement covers loans disbursed as of June 30, 2022. If you have received a Pell Grant, you can potentially receive up to an additional $10,000 in loan forgiveness.
In order to receive loan forgiveness, you will most likely need to fill out an application that should be available in October. The deadline to submit this application will be December 31, 2023.
It’s important to note that while loan forgiveness is typically counted as income and therefore taxable, federal student loans forgiven between 2021 and 2025 are currently exempt from this thanks to the American Rescue Plan Act that was signed into law last year.
However, while this exemption covers the federal level, it does not apply automatically to the state level. While most states follow the federal guideline, there are currently 6 states, that might require you to pay taxes on this income, unless the laws are changed.
We encourage you to contact us at Contact@CraneHoltzman.com if you’d like to discuss this and see how it might affect your tax filings and to see if you file taxes in a state that might require you to pay taxes on the forgiven federal student loan debt.