North Carolina Says Student Loan Forgiveness Will Be Taxed

Date:

  • Student loan forgiveness is a taxable income in North Carolina, the state Treasury Department confirmed.
  • The Biden administration’s student loan waiver plan is exempt from federal tax.
  • The debt relief leads to individual state taxes in North Carolina and Mississippi.

Forgiveness of student loans will be considered taxable income in North Carolina, the state tax department said Wednesday.

While the Biden administration’s student loan waiver plan is exempt from federal tax, the debt relief still leads to some individual state taxes.

In North Carolina, the student loan exemption is taxable because the state has not fully passed a specific section of the Internal Revenue Code. Congress used the provision — Section 108(f) (5) — to exempt from tax waived student loans between 2015 and 2021 as part of the American Rescue Plan Act.

The department said in the press release, “The North Carolina General Assembly has not passed Section 108(f)(5) of the IRC for state income tax purposes. Therefore, student loan forgiveness is precluded under IRC 108(f)(5). ) is currently considered taxable income in North Carolina.”

North Carolina’s announcement makes it the second state to confirm that the student loan exemption counts as taxable income.

On Tuesday, the Mississippi Department of Taxation confirmed to Bloomberg that it plans to tax residents’ waived student loans with state income taxes.

According to the Tax Foundation, at least 13 states are not required to fully enforce the federal tax exemption when it comes to state taxes. But some, including New York and Hawaii, have already moved to ensure that residents who qualify for debt forgiveness are not hit by a state tax bill.

Now, the Tax Foundation expects three more states, Arkansas, Minnesota and Wisconsin, to be able to tax student loan forgiveness.

A spokesman for Wisconsin’s Department of Revenue told Insider that excluding tax debt forgiveness required legislative change and action on the part of the state legislature.

The spokesperson said: “At this point, this amendment has yet to be approved by the state legislature.

“We will certainly address this discrepancy with federal law in our upcoming biennial budget request to ensure Wisconsin taxpayers are not subject to penalties and increased taxes for canceling their loans.”

A spokesperson for the Minnesota Department of Revenue told Insider that a provision introduced in May to comply with the American Rescue Plan Act was not passed during the state legislature’s final session.

“If the state does not comply with this federal law, Minnesota taxpayers who have forgiven their student debt will be required to repay this amount for Minnesota income taxes,” the spokesperson said.

A spokesman for Arkansas Governor Asa Hutchinson said the state’s Treasury and Administration Department is currently reviewing whether debt forgiveness will be subject to income tax.

“As a state that doesn’t automatically pass changes to federal tax policy in our state income tax law, we need to determine whether the existing state law would consider this taxable income,” they said.

The spokesperson added that they expect a decision on the student loan tax in the coming days.

Representatives from the Arkansas Department of Finance and Administration did not immediately respond to Insider’s request for comment, which was made outside normal business hours.

However, the department told Bloomberg that it was “looking at whether debt forgiveness in this scenario, via executive order, is subject to state income tax in Arkansas.”

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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