From Newsweek · · 1m 50s
Student Loan Tax Shock for Borrowers
Some student loan borrowers face $12,000 extra federal taxes after forgiveness.
In brief
Some student loan borrowers face $12,000 extra federal taxes after forgiveness. Student loan borrowers receiving income-driven repayment forgiveness could pay up to $12,000 more in federal taxes. Originally reported by Newsweek.
Tax Impact of Student Loan Forgiveness
Some student loan borrowers who have their remaining balances forgiven this year could face thousands of dollars in additional federal taxes.
Potential Tax Burden
Certain borrowers will be paying nearly $12,000 more in federal taxes, according to a new report from Protect Borrowers.
Tax Exemption Period
A temporary federal exemption that prevented many forms of canceled student loan debt from being treated as taxable income applied to discharges after December 31, 2020, and before January 1, 2026.
Taxable After 2025
However, it was not extended for income-driven repayment forgiveness beyond 2025.
Financial Impact
Protect Borrowers estimates 2 million to 3 million borrowers could become eligible for IDR cancellation and potentially be exposed to the resulting federal tax bomb over the coming decade.
Tax Calculation Example
For a single borrower earning $60,000, the report estimates a federal tax bill of $15,303 after the modeled loan cancellation, compared with $4,720 if the canceled debt were not taxed.
State Variations
Borrowers in Louisiana, Mississippi, Arkansas, West Virginia, Oklahoma, and New Mexico could face the largest increases in additional taxes and lost credits.
State Impact Details
Louisiana: $7,668 in additional taxes and lost credits; Mississippi: $7,303; Arkansas: $6,830; West Virginia: $5,883; Oklahoma: $5,885; New Mexico: $5,932.
What Happens Next
Congress could eliminate the problem by once again excluding IDR forgiveness from federal taxable income, and Protect Borrowers has called on lawmakers to make forgiveness through both existing IDR programs and the newer Repayment Assistance…
What to remember
Student loan borrowers receiving income-driven repayment forgiveness could pay up to $12,000 more in federal taxes.
