When Biden’s plan was announced I calculated:
An average student loan holder will see their monthly student loan payment go down a whopping $55 … adding about 2 bucks-a-day to their disposable income … about a Starbucks frappe every week.
Enough to matter?
You decide.
For details see: Dumb and dumber looks even dumber when you dig into the details
I also asked a question that I hadn’t heard or read anywhere: What about the income tax implications?
You see, according to the IRS:
IF you have cancellation of debt income because your debt is canceled, forgiven, or discharged for less than the amount you must pay, the amount of the canceled debt is taxable and you must report the canceled debt on your tax return for the year the cancellation occurs.
So, at a 15% income tax rate (the lowest bracket), a Biden loan forgiveness recipient might be getting a $1,500 tax liability … for the 2022 tax year.
=============
A couple of loyal readers reminded me that:
Last year, the American Rescue Plan precluded any federal taxation of student-loan cancellation through 2025.
Nuts!
But, I was on the right track.
A WSJ op-ed advises that state lawmakers can tax the windfall.
New York, for one, is choosing to tax student-loan forgiveness. All in all, it appears 13 states are primed to follow NY’s lead on taxing debt relief.
- Arkansas
- Hawaii
- Idaho
- Kentucky
- Massachusetts
- Minnesota
- Mississippi
- Pennsylvania
- South Carolina
- Virginia
- West Virginia
- Wisconsin
The author points out that the above states “could mitigate some of Biden’s unfair stimulus by using the revenue (from taxing the forgiven loans) to give one-time tax rebates to residents who didn’t attend college or paid off their student loans.”
Not a full loaf, but better than nothing ….
The Homa Files 