It is still up in the air if the Biden student loan forgiveness plan will become a reality.
CNBC reports that Republicans are considering bringing legal challenges to prevent student loan forgiveness.
Although no lawsuit has been brought yet, GOP attorneys general from states such as Arizona, Missouri, and Texas, as well as Sen. Ted Cruz, R-Texas, and those connected to conservative think tank the Heritage Foundation, are considering their options when it comes to trying to block loan forgiveness, according to reporting by The Washington Post.
“The uncertainty for borrowers in the meantime is, I’m afraid, considerable,” said Laurence Tribe, a Harvard law professor.
If you are eligible for forgiveness, you should apply online when possible.
While student loans may be forgiven free of federal taxes, some states are already warning residents they will still owe income tax on the forgiven debt.
For example, in my state of North Carolina, taxes will be due and expected.
The NC Department of Revenue said, “As part of the American Rescue Plan, Congress enacted Section 108(f)(5) of the Internal Revenue Code to expand the types of student loan forgiveness that would not be treated as taxable income for purposes of federal income tax.
The North Carolina General Assembly did not adopt Section 108(f)(5) of the IRC for purposes of the state income tax. Therefore, student loan forgiveness excluded pursuant to IRC 108(f)(5) is currently considered taxable income in North Carolina. See N.C. Stat. 105-153.5(c2)(22).” – Source
Residents of the following states are also at risk of owing state taxes on the forgiven student loan debt.
- New York
- North Carolina
- South Carolina
- West Virginia
- Wisconsin – Source
It is quite possible this list of states could change as the individual states clarify the rules or change the local laws.
The best advice is for anyone getting forgiveness to talk to their tax adviser as soon as possible if they live in any of these states, so they are not caught off guard at tax time.
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