If you had your student loans canceled or reduced under the Biden Administration in 2024, you may need to start planning. Please understand that this forgiveness of debt may or may not create additional income tax.
The concept in tax law has always been that forgiveness of a debt is an economic benefit. As such, under usual circumstances, it’s subject to income tax.
But these are unusual times.
Given the American Rescue Act of 2021 you aren’t required to pay federal income taxes on the forgiveness of any federal or private student-loans through Dec. 31, 2025. But that has nothing to do with a potential state income tax liability.
When it comes to the individual states, here’s what we know…
1 – There are 9 states with no state income tax.
2 – 20 states automatically conform with federal tax rules where it would also be nontaxable.
3 – Five states being Arkansas, Indiana, Mississippi, North Carolina and Wisconsin currently impose taxes on student-loan forgiveness.
4 – There are14 states with is a risk that student-loan forgiveness may not be tax-free depending on when and why the loan was forgiven. Those include Alabama, Arizona, California, Georgia, Hawaii, Idaho, Kentucky, Maine, Minnesota, New Jersey, Pennsylvania, South Carolina, Virginia and West Virginia.
5 – Illinois fully conforms with Federal Tax Law on student loan forgiveness. This is one of the few instances where that is true.
Let me leave you with this…
You’re gonna love this.
Acting IRS Commissioner Melanie Krause said in an email sent to all IRS employees, that the probationary workers who were laid off Feb. 20, would be reinstated and placed on administrative leave until further notice. These workers will be fully paid for doing absolutely nothing.
The email stated, “not [to] report to duty or perform any work until receiving further guidance.” The email cited an order from a U.S. District Court judge in Maryland that 18 federal agencies, including Treasury, reinstate “certain probationary workers” at least temporarily.
Probationary employees who asked for further details received a second email saying that workers will receive back pay and that all benefits, such as life insurance, health, vision, and dental coverage, will be reinstated. It also said that workers will continue to accrue annual leave and sick leave.
The IRS has not yet received a reduction-in-force and reorganization plan from Treasury, she said. “We continue to engage with Treasury regarding potential reduction levels, other workforce reshaping tools, and other important considerations regarding timelines.”
Her email ended with a reminder that employees also should “recognize that mental health and wellness is a crucial component to our overall well-being.”
I guess that getting paid to not work is now a “mental health and wellness” crisis.
Mama always told me that I should get a government job. What was I thinking?
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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