Americans who thought student loan forgiveness was a tax-free godsend may need to think again, depending on where they live.
The American Rescue Plan ensures that there will be no federal tax liability for loan forgiveness between 2021 and 2025. The same is not true for all states or counties that have an income tax CNBC. That could create a problem for former students dropping out repay up to $10,000 or $20,000 in student loans.
That tax foundation offered a list of seven states that are likely places where loan forgiveness might be treated as taxable income. It was originally estimated that 13 states could tax the loan forgiveness as income.
The latest list, which includes Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin, notes in its report that laws are subject to change and that it will affect everyone, regardless of where they live loan forgiveness should investigate the laws in their state.
California State Assembly Speaker Anthony Rendon and Senate President, Pro Tem, Toni Atkins recently promised that California will pass legislation to waive the state’s loan forgiveness taxes in 2023.
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“Once the federal government finalizes the details of the student debt relief program, we will know if debt relief is tax-exempt under current California law,” Senate Pro Tempore President Toni Atkins and House Speaker Anthony Rendon said in a joint statement Sept. 9 on Longview News Journal. “If not, we will exempt the relief tax in early 2023 by taking immediate action.
“Rest assured that one way or another, California will not tax federal student debt relief.”
In its report, CNBC said Indiana residents would owe a state and possibly a county tax for now.
“Because this law is clearly defined, no additional administrative regulations are required,” an Indiana Treasury Department official told CNBC. “Any change in the law must come from the General Assembly.”
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Scott Hardin, a representative for the Arkansas Department of Treasury and Administration, told CNBC that the tax issue will not be resolved until the state legislature returns in January.
“It would be inaccurate to report that student loan forgiveness will be taxable in Arkansas as we are not certain until after the legislative session is complete,” he said.
Minnesota officials check loudly ValleyNewsLive.
CNBC said Mississippi has confirmed it will tax the loan forgiveness as income.
A statement dated August 31, dated North Carolina Department of Treasury is clear, stating that “student loan forgiveness that is excluded under IRC 108(f)(5) is currently considered taxable income in North Carolina.”
However, North Carolina Gov. Roy Cooper wants to remove his state from the list of states that will do so VAT loan forgiveness.
“Leaders in the Legislature must find a solution that treats student loan forgiveness the same way they treated PPP loan forgiveness, which many of them have received. Republican lawmakers were quick to bail out corporations and should now right this basic injustice for many hard-working people who are being hit hard by it,” he said in a expression.
Wisconsin could also take action, a Wisconsin Treasury Department official told CNBC.
“We will definitely address this discrepancy with federal law in our upcoming biennial budget proposal to ensure Wisconsin taxpayers do not face penalties and increased taxes if their loans are forgiven,” the representative said.
Eric Bronnenkant, Certified Financial Planner, Chartered Accountant and Head of Taxation at Betterment, narrates CNBC that only a few states are affected, as only 13 states enact their own tax regulations separate from the federal tax code.
Thirty-seven states “elect to conform to the federal tax system, conform to specific federal laws, or create their own specific exemptions and exclusions,” Bronnenkant said.
The other 13, he said, can change the rules through “changes in the law or administrative decisions by state tax authorities.”
This article originally appeared on The West Journal.
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https://ijr.com/celebrating-student-loan-forgiveness-may-nasty-tax-bill-on-april-15-in-7-states/ These college kids celebrating student loan forgiveness could face a nasty tax bill in 7 states on April 15th