President Biden announced on Wednesday that the federal government would cancel up to $20,000 worth of federal student loans for millions of people. The plan will forgive $10,000 in federal student debt for most borrowers, and up to $20,000 for Pell Grant recipients. That could wipe the slate clean for as many as 16 million of the 48 million people who took out federal loans to pay for college. The forgiveness is limited to borrowers making less than $125,000 per year, or $250,000 for married couples filing jointly and heads of households.
Many people are left wondering if this canceled debt will have an effect on their taxes come April 2023. The short answer is no, student loan forgiveness won’t trigger a federal tax bill. The American Rescue Plan of 2021 made student loan forgiveness tax-free through 2025 — and the law covers Biden’s forgiveness too, according to the White House. However, this may not be the case for state levies. If you are subject to state income tax, please contact your Tax Advisor for additional information regarding your situation.
The Biden Student Loan Forgiveness Plan was short on specifics about how and when borrowers can claim relief. The Department of Education said that details will be announced in the coming weeks, but promised specifics would come before December, 31, 2022.
The first qualification for eligibility for student loan forgiveness is that you took out a federal student loan. Private loans from banks are not eligible. If you’re already enrolled in some kind of income-driven repayment plan, and have submitted your most recent tax return to certify your income, your servicer and the Education Department know how much you earn, and you should not need to do anything else. If not, the Department of Education will be making some sort of application available to the public by the end of the year.
For more information and FAQs visit: https://studentaid.gov/debt-relief-announcement/
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