Indiana’s Going to Tax Student Loan Debt Forgiveness


Oh, what the liberals will do to get votes in the midterms. Biden thought that he had it all figured out when he picked up his trusty pen and signed a bill that would wipe away student loan debt for millions of Americans. $10,000 for those with federal student loans and $20,000 for those with Pell Grants. That is, as long as you make less than $150,000.
Well, here’s what Biden didn’t think of. States can see the forgiveness of debt as a form of income. And income means that they can be taxed on it.

The federal government won’t tax the forgiven amount as income. However, states that have its own income tax can do whatever they want – and it’s got a number of people worrying about what the cost of this forgiveness will be when they get ready to file taxes.
And Indiana has confirmed that it will be taxing its residents on those who receive the student loan forgiveness.

No one wants to get $10,000 off of their student loans only to turn around and have to pay taxes on an extra $10,000 worth of “income,” especially since it’s a lump sum. And as of right now, there’s no way to opt-out of this forgiveness. You can’t just call the Department of Education and say that you don’t want any loan debt to be forgiven. Biden’s forgiving it whether you want him to or not.

And that’s where many Americans are in a panic – especially those who just heard about what’s happening in Indiana.

The Indiana Department of Revenue has already disclosed that they will be requiring citizens to list student debt relief as taxable income.

Natalie Rodriguez, the communication manager for the DOR told the Associated Press that residents receiving the debt relief would be required to pay state and county taxes based on current Indiana law.

This can be quite a hit for individuals as well as couples. If both a husband and a wife had student loans and didn’t have a combined total income of more than $300,000, it could end up being $20,000 of “income” that they have to pay on – and $40,000 if they had Pell grants.

The state tax rate is 3.23%. County taxes can vary.

The financial burden could add up to $646 in state taxes or even more depending on how much is actually being forgiven. As for county taxes, it can vary – though residents of Marion County, which includes Indianapolis, may pay another $400 in county taxes.
That’s a potential $1,000 tax burden. Those who usually get about $1,000 back in taxes, they can kiss their refunds goodbye. And those who typically break even, they’ll have to consider how they’re going to come up with hundreds of dollars to ensure that they can pay their tax bill when the time comes.

Is it too late for Indiana to change its mind on how it will deal with student loan forgiveness? No.

Todd Huston, the Indiana House Speaker, said that “conversations will continue” once the next legislative session convenes in January 2023. The state does have the ability to make adjustments so that it can put an exemption on the student debt relief, similar to what the federal government has made.

There are some states that have already identified that they will not be taxing the relief, including New York, Idaho, Virginia, and Hawaii. Other states are “still reviewing” whether they will subject its residents to added state taxes.

It’s a wait-and-see situation. If you’re in a state where you pay state sales tax and have student loan debt is forgiven, you may want to set aside some money to deal with taxes. You know, just in case.