The question on every graduate’s mind is whether they will need to pay taxes on their student loan forgiveness. The one-time student loan forgiveness will forgive $10k for most borrowers earning under $125,000 annually or $250,000 if filing jointly. Some borrowers could receive up to $20k in student loan forgiveness if they previously received a Pell Grant. The student loan forgiveness will be a one-time occurrence and cannot be applied towards future tuition. However, there are some instances where your student loan forgiveness may be taxed. The tax experts at ORT Consulting are staying current on the latest regulations on how taxes will be handled with the student loan forgiveness program.
Student Loan Forgiveness with Federal Taxes
Officials have confirmed that any student loans forgiven through the end of 2025 are exempt from federal taxes. This means that you will not owe any additional federal taxes on your forgiven student loan debt. However, this does not mean you are completely off the hook for taxes. Some states are requiring borrowers to pay taxes on their forgiven loan amounts.
How States are Handling Taxing Student Loan Forgiveness
Each state has its tax codes, so it is no surprise that some states are letting borrowers off the hook while others require residents to pay taxes on their student loan forgiveness. Currently 13 states have either confirmed that they will be taxing student loan forgiveness or are currently examining their state tax codes to determine whether student loan forgiveness will be taxable. Please stay informed over the next several months as to what the final consensus will be.
Many other states either do not have a state income tax or have confirmed that student loan forgiveness is not taxable. Since there is still a considerable length of time before the filing date for 2022 taxes, this information may change. To stay up to date on the latest information, trust the experts at ORT Consulting to handle your tax preparation.
Contact ORT Consulting for Tax Preparation Assistance
ORT Consulting provides tax preparation services to both individuals and businesses. Our tax professionals can advise you on whether you will need to pay state taxes on your student loan forgiveness. Please contact our office at 773-637-8802 to learn more about our tax preparation services.