Student Loan Forgiveness

[rcooley25]

It is my understanding that debt forgiveness is taxable income.

However I thought that student loan forgiveness was not taxable income.

I went on line to check this out aand the reponse I got was very confusing.

They said generaly it is not taxable but under certain circumstances it might be but does not say what those circumstances are.

Anyone have a clearer answer?

[Lord Happy]

Happy day...I agree that the guidance is still yet being developed, but it appears that if the loans were federal and stayed federal, that the forgiveness amount won't be taxable.  If someone is worrying, I would smile politely and simply ask them if they would be happier paying $10k, or the tax on $10k.  Nod knowingly, pat their forearm and tell them that a lot of procedures have to be settled out and get back to enjoying life.

[qbteachmt]

"Anyone have a clearer answer?"

Search on ARPA and Student Debt...

https://www.cnbc.com/select/states-waiving-taxes-for-student-loan-debt-forgiveness/

"In March 2021, President Joe Biden signed the American Rescue Plan into law, which included a clause regarding student loan forgiveness saying that any federal student loans that were discharged between 2021 and 2025 would not be considered taxable income — in terms of federal taxes."

https://www.journalofaccountancy.com/news/2021/dec/lenders-should-not-report-student-loans-discharge...

When ARPA came out, it revealed the intention for some federal forgiveness action. That's why it was in the news all this time as "potential."

States will vary...

https://www.cnbc.com/2022/09/08/you-may-owe-taxes-for-federal-student-loan-forgiveness-in-these-stat...

[IRonMaN]

"Anyone have a clearer answer?"

Federal - not taxable

State - maybe - depending on the state.

How can you get any clearer than that 😉

[rcooley25]

This is why you cant believe some of the things you read on the internet.

The way you put it it is very clear.

However I would like to vent may anger over this ruling as being nontaxable.

Any of us who have ever had a debt forgiven has had to pay income taxes on it. Why should these students get off scott free? A person who has a credit card debt of 600.00 forgiven has to pay income taxes on it. Why should someone who has $10000.00 in debt cancelled not have to pay taxes on it.

Ooops I stand corrected. Jesus did not charge me for his paying my debt.

[qbteachmt]

"Why should someone who has $10000.00 in debt cancelled not have to pay taxes on it."

The taxpayers guarantee Federal student loans, so the colleges can raise their charges. The Feds offer loan forgiveness for public service and other qualification, and now at a base level, which is what the taxpayer was already on the hook for, anyway. Instead of making good education available on a wider basis, we run the money in circles. In our region, there was a study that figured out a dollar will circle through 7 steps before it's all used up.

It's the circle of life.YMMV

[IRonMaN]

I don't have any problem with them forgiving the debt.  Some folks think that is terrible since they paid off their debt.  I am one of those that paid off my debt but that was 200 years ago and it only cost $5.99 to go to college back then.  With the costs of education being so crazy these days, and the need to have some kind of half baked degree to get some of the more basic jobs now, so what if some folks got some help attempting to get their heads above water.

As far as it not being taxable, what's the big deal?   I really have a problem with folks complaining about it since a lot of those folks were the same ones that were standing in line to get their welfare checks...........um, I mean PPP loans. 

[rcooley25]

Man you are one old dude.

AS far as the forgivness of debt not being taxable the big deal is  is the same law should apply to all of us and it does not. Some of the people who are having this debt forgiven are doctors and lawyers who are making a salary that would put what you and I earn to shame.

[IRonMaN]

Are they really?  There are income limits on the forgiveness.

[rcooley25]

That is my whole argument.

[rcooley25]

If you are right about limits on income I have not heard of them,

[Lord Happy]

Happy day,

Limitations are 125k individual, 250k MFJ.  And for kids who were claimed as dependents, forgiveness will be based on their parent(s) income. Although I understand some sort of change was made four days ago.  Anyway, best bet is to tell people to beg for forgiveness this month on the student loan site and it will all come out in the wash. 

Proseries probably can't do an analysis cross-referencing clients meeting the 2021 income threshold and who had student loan interest in 2019 (figuring clients may not have paid during the suspension period).  You will likely be hammered for clients wanting copies of the returns they lost/misplaced, so that will be nice.

As for the politics of it all...people are getting what they voted for if their party is in power, and if not, then they are getting what other people feel is best for them, so it all works out.

I either want less corruption or a bigger part of it.

[qbteachmt]

"about limits on income I have not heard of them"

Are you using the web searches at all, as I suggested?

Try this one:

arpa student loan forgiveness income limit

"Under President Biden's student loan debt cancellation plan, the Department of Education will provide student loan relief up to $10,000 to borrowers whose loans are held by the Department of Education, and whose income is less than $125,000 per year. For married couples who file jointly, the student loan cancellation income limit is $250,000. (Each spouse will be eligible for up to $10,000 in student loan cancellation). For Pell Grant recipients, student loan relief of up to $20,000 is available."

https://www.kiplinger.com/taxes/605127/will-student-loan-debt-cancellation-hurt-your-taxes

https://www.kiplinger.com/biden-forgives-student-loans-what-it-means

[taxes96786]

Client will know when they get the 1099

[taxes96786]

They may not even get the "forgiveness". I would wait for the results of all the law suits before worrying about it.