LANSING, Michigan (WILX) – If you have student loan debt, you probably know how loan cancellation affects your taxes. Currently, canceled loans are considered income on tax day. But a new bill in the Michigan House of Representatives seeks to change that.
The bill would make loans canceled by the Department of Education exempt from counting toward your total state income tax. Total student loan debt in the United States is approximately $ 1.7 trillion. Michigan House Democratic lawmakers want to make sure that students who get their federal loans canceled don’t have to pay state income tax.
Padma Kuppa is a State Representative for the 41st District of the House.
Kuppa said, “I see how much college costs and how prohibitive it is for people who really want to work hard to get a college degree, but sometimes they can’t afford it.”
Canceled loans are considered income for tax purposes. Thus, anything that is forgiven adds to your tax responsibilities. This bill would prevent that.
Megan Coval is Vice President of Policy and Federal Relations for the National Association of Student Financial Aid Administrators.
“Nationally, we have advocated for loan cancellation to be tax exempt,” Coval said. “It’s definitely a big advantage for the student to have their loans canceled, but then if they turn around and kind of get hit with a big tax bill because of it… it really hurts them. bad in a way. “
People in some forgiveness programs have to wait years to benefit by making consistent payments over time. Sarah Brenner is a lawyer in the Lansing area.
“If this passes, it would benefit me,” Brenner said. “It will still not benefit my husband because he still has his share that he has to pay. It would be great not to have to pay taxes on top of the money. “
The Biden administration is pushing to completely cancel federal student loans. If this happens, students could have to pay income tax on tens of thousands of dollars in canceled debt. If this bill were to pass, taxes could be eliminated.
Kuppa said, “If you get the allowance you shouldn’t have to pay tax on it as income because you will end up paying tax once you get a better job. So that will be a way to lighten the burden.
Right now this bill has only Democrat support. Lawmakers hope he can become bipartisan to help push it forward.
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