Student loan debt forgiveness could come with Minnesota state income tax
Sep 14, 2022 09:12AM ● By Content Editor
By Larissa Milles - KBJR 6 News - September 14, 2022
While Minnesota and Wisconsin student loan borrowers might soon have some of their federal debt forgiven, they might still need to pay state taxes on it.
By the end of 2022, student loan borrowers can expect $10,000 to $20,000 of their federal student loan debt to be forgiven after the Biden administration announced the move in August.
“The response I’ve heard so far has been positive, especially from students and from recent alumni who have student loan debt,” said Donna Dahlvang, the Director of Financial Aid & Scholarships at UMD.
However, that forgiveness might cost some people hundreds of dollars.
“The amount that’s forgiven is not taxable at the federal level,” Donna Dahlvang. “It is taxable currently, in several states across the US, and Minnesota and Wisconsin are two of them.”
Minnesota and Wisconsin state tax codes do not currently conform to the federal code, meaning student loan forgiveness would be taxed as state income.
“At this point, it’s taxable, until they say it’s not taxable,” said certified public accountant Jim Hacking.
Hacking said if the law doesn’t change before the 2023 tax season, borrowers could be taxed hundreds of dollars.
“So if it’s taxable, I would say a good average number would be six percent, you know if you have $10,000 forgiven, you might end up owing $600 in state income taxes,” Hacking said.
He said whether the law changes, for those with a remaining balance after forgiveness, consolidating loans into one payment is the best option for repayment.
“Getting things into one fixed payment at a lower rate, that really makes things simpler for people coming out of school with student loan debt,” Hacking said.
Loan forgiveness would be un-taxable in Minnesota and Wisconsin if each state legislature passes new tax code law in any upcoming regular or special sessions.
Arkansas, Mississippi, and North Carolina also have current laws that make forgiven loans taxable.
To read this original story and more news, follow this link to the KBJR 6 News website.
