Mississippi is the first state to confirm that residents there will be taxed on student loan forgiveness, and four other states could follow suit.President Biden’s student loan forgiveness plan would eliminate $10,000 in federal student loan debt for those with incomes below $125,000 a year, or households that earn less than $250,000.
It would also cancel an additional $10,000 for those who received federal Pell Grants to attend college.Typically, debt forgiveness is considered taxable income under IRS tax code, but the American Rescue Plan exempts student loan forgiveness as taxable income from 2021-2025.
According to The Tax Foundation, a tax policy think tank, most states fall in line with IRS code, but some states don’t.Of the states that don’t conform to federal law, at least six — New York, Pennsylvania, Kentucky, Virginia, Hawaii and Idaho — have announced plans to exempt the new student loan forgiveness from taxation, Bloomberg reports.Four others — Arkansas, Minnesota, North Carolina and Wisconsin — "still appear to be on track to tax student loan debt forgiveness," Jared Walczak, vice president of state projects at the Tax Foundation, said in a blog post.RELATED: Broad support emerges for wiping away Minnesota tax on student loan reliefBut Walczak cautions that the list could get even smaller as more states issue guidance in coming weeks and months.Bharat Ramamurti, deputy director of the National Economic Council, gives details on the timeline for applying for student loan forgiveness during the Aug.
26 White House press briefing.Biden’s plan will almost certainly be challenged in court. If it survives legal scrutiny, applications for student loan relief will be available in early October.