Attorney Adam S. Minsky joined Cheddar News to discuss potential taxes that could be placed on student borrowers if the debt is forgiven.

Closing Bell

Student Loan Forgiveness Could Be Subject To Tax

while millions of student loan borrowers are awaiting the court decision on President biden's one time student debt forgiveness plan, some may have already received relief or cancelation last year. Well, any kind of debt forgiveness does have tax consequences for borrowers and is to be reported as income on return. So it might lead to higher income taxes. Today we're hearing from an expert who can break down the complex tax tax landscape for student loan forgiveness. Joining me now is Adam Minsky, student loan attorney Adam. It's great to have you on the show here. Can student loan borrowers expect to get a bill from the government this tax season? The good news is probably not. So normally, any sort of debt cancelation, including student loan forgiveness is a taxable event. Um, but legislation passed in 2021 on the American rescue plan act. That very big stimulus bill includes a provision that exempts from federal taxation, essentially all forms of federal student loan forgiveness and discharged federally. Most borrowers who have received federal student loan forgiveness last year in 2022 will not get taxed federally on that discharge. What about state and local taxes adam? How do those fit into the equation? So that's where it gets a little bit more complicated. Uh, so many states don't have an income tax at all. So those folks won't have to worry if they live in those states, other states that do have a state income tax. It really depends on the laws of that state. Many states have laws on the books that effectively mirror the tax treatment of the Fed. So if it's not taxable federally, it will not be taxable at this level, but that's not always the case. Each state might differently. So folks would be wise to check with their state laws, Talk to a qualified tax advisor because even if it's not taxable federally, there's at least a chance it could be taxed at the state level. Mm hmm. Well, what else should student loan borrowers adam? No. And how can they prepare for this tax season? The best thing that they can do is talk to a qualified tax professional. If you are going to be taxed on canceled or forgiven student loan debt, you would receive a special type of tax form called a form 1099C by mail. This is different from the form 10 98 which is student loan interest that's been paid, that you might actually be able to deduct on your tax return. But even if you've got a 10 99 C, it doesn't necessarily mean you have to pay taxes on a tax code provides some other exemptions, such as insolvency in other ways of possibly reducing or eliminating any resulting tax liability. So your best bet is to talk to a professional, see what your options are. Of course biden's one time student loan forgiveness plans still awaiting court approval adam. Any sort of insight is a student loan attorney as to how that might play out and a timeline for borrowers. It's a great question. We just don't know how this is going to shake out. The Biden administration is confident that their legal arguments are going to prevail, but we will just have to see oral arguments on the two challenges before the Supreme Court are set for February 28. So in just a few weeks and often those oral hearings are a good clue where we can get a sense as to how the justices might be leaning. A decision is expected by june by this summer and in the interim, most federal student loan payments are continuing to be paused while we're waiting the final ruling from the Supreme Court. Okay, We'll wait to see how that one shakes out Adam Minsky. Student loan attorney. Adam. Great to have you. Thank you.