Indiana the latest state to confirm it will tax student loan forgiveness

cigaretteman

HR King
May 29, 2001
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Indiana became the latest state Tuesday to confirm that it will tax student loan forgiveness, AP reports.

Why it matters: As the Biden administration sets out to implement its sweeping student loan forgiveness plan, some states have indicated that residents could face a state tax on the balances forgiven. Mississippi and North Carolina previously confirmed that forgiven student loans are considered taxable income.

Driving the news: Indiana's tax rate is currently 3.23%, meaning those eligible to have their debt canceled will pay up to $323 or $646 in taxes depending on the amount of student loan forgiveness they qualify for, per AP.

  • Residents will also have to pay county taxes for the forgiven balances.
The big picture: Other states such as Minnesota, Wisconsin and Arkansas will also tax forgiven balances unless they change their laws to adhere to a federal tax exemption for student loans, according to the independent tax policy nonprofit Tax Foundation.

  • Relief would largely depend on each state's legislature.
  • Indiana House Speaker Todd Huston (R) told AP he expects conversations about the state policy "to continue as we head into the next legislative session," which will begin in January.
Worth noting: New York, Pennsylvania, Kentucky, Virginia, Hawaii and Idaho are among the states that have confirmed they will exempt from income taxes residents whose student loans qualify for debt cancellation, Bloomberg reports.

 

Hawki97

HR Heisman
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Dec 16, 2001
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In general, debt forgiveness is taxable as ordinary income. There are a handful of exceptions.

Yeah, I don't know that I have a problem with this. I get the optics of it look like it's political (and it is) but taxing debt forgiveness is not something I see as out there considering our current tax laws.
 

SeaPA

HR Heisman
Dec 17, 2002
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Damn, those that had PPP loans forgiven must've had to write out a nice check at tax time

Negative. Congress made PPP loan forgiveness tax-exempt (not sure what the various States did on this, as my business clients are concentrated in FL).

The things Congress did on issues related to the PPP were absurd; they just kept heaping more toppings onto an already overloaded ice-cream sundae.
 

bhawk24bob

HR Legend
Jul 8, 2001
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How is forgiving 10k-30k in loans actually working in practice? Have they started forgiving them? I assume that there needs to be some kind of income verification and the $125k cap can't be on the honor system
 
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Titus Andronicus

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Sep 26, 2002
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So the states with low tax rates are not waiving taxes and the states with high tax rates are?

Plus, I bet that an overconcentration of outsized loan balances exists in the Northeast and in California. Those are the states that like to tax things, so this is a little surprising.

I am guessing that even though smaller, the loan balances in the deep South are more of a burden on the borrowers. (A higher mix of trade school, and technical school loans?)

There seems to be some political maneuvering involved here.

At the end of the day, the Democrats have found another way to subsidize the state tax collections.

Remember the SALT deductibility issue? This is a strike back. It has little to do with helping students pay back loans. In fact it fast forwards the tax payments if anything. (I doubt that the writers of this bill expected New York of all places to place an exemption on the forgiveness.) I would note that so far, we have not heard from MA, NJ, CA, or IL.
 

Hoosierhawkeye

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Sep 16, 2008
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How is forgiving 10k-30k in loans actually working in practice? Have they started forgiving them? I assume that there needs to be some kind of income verification and the $125k cap can't be on the honor system

My mom said that people could start applying for it in October or something like that. My guess is that there will be a lawsuit before than and probably an injunction put in place.

If there isn't a lawsuit it will likely be because they couldn't figure out someone with standing to sue.
 

Moral

HR Legend
Sep 29, 2017
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My mom said that people could start applying for it in October or something like that. My guess is that there will be a lawsuit before than and probably an injunction put in place.

If there isn't a lawsuit it will likely be because they couldn't figure out someone with standing to sue.

I fully expect this to happen. I am going to guess that some of those people that get screwed out of it will change their politics.
 

Huey Grey

HR King
Jan 15, 2013
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My mom said that people could start applying for it in October or something like that. My guess is that there will be a lawsuit before than and probably an injunction put in place.

If there isn't a lawsuit it will likely be because they couldn't figure out someone with standing to sue.
As of last week there was no application process. It was likely to be automatic.
 

Jerome Silberman

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Oct 30, 2009
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How is forgiving 10k-30k in loans actually working in practice? Have they started forgiving them? I assume that there needs to be some kind of income verification and the $125k cap can't be on the honor system
It's not working. First it hasn't started and second it will have to endure every lawsuit that can be dreamed up. In the end I'm sure the effects will be neutered and the cost will be sky-high from admin costs and lawsuits.
 
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Huey Grey

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It's not working. First it hasn't started and second it will have to endure every lawsuit that can be dreamed up. In the end I'm sure the effects will be neutered and the cost will be sky-high from admin costs and lawsuits.
I think a lawsuit is unlikely. Who has standing to sue?
 

Hoosierhawkeye

HR Legend
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I think a lawsuit is unlikely. Who has standing to sue?

Congress could but since they are controlled by the Dems they won't.

Personally I think it's not a good thing since it's an open question as to if this is even constitutional or not.
 

Huey Grey

HR King
Jan 15, 2013
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Congress could but since they are controlled by the Dems they won't.

Personally I think it's not a good thing since it's an open question as to if this is even constitutional or not.
Congress has no more ability to sue over this than anybody else.
 
Nov 28, 2010
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Maryland
I'm unclear about how much Biden can do on his own, but I assume there are work-arounds.

For example, if I'm correct in assuming tax credits aren't taxed, then why not configure loan "forgiveness" as a tax credit?