SPRINGFIELD, Mass. (WWLP) – Tens of millions of Americans are eligible for student loan forgiveness but you might have to pay state taxes.
According to the tax foundation, Massachusetts is one of 13 states in the country where you might have to pay taxes on the loans that were forgiven but Governor Baker said it’s not set in stone. Last week President Biden announced student loan borrowers can have $10,000 in federal student loans forgiven or $20,000 if they’re a Pell grant recipient.
The reason why you might be taxed by the state on this is that when you have debt forgiven it can count as income. The American Rescue Plan Act does have a provision that student loan forgiveness between 2021 and 2025 does not count as federal taxable income. However, Massachusetts is listed as one of thirteen states with the ability to tax it.
“The state, like other states is waiting for federal guidance in how it’s going to work and once we get the guidance we’ll basically interpret that in terms of existing state law. I don’t know the answer at this point.” Governor Baker
The tax foundation estimates Massachusetts residents could pay up to $500 in state taxes if they have $10,000 forgiven. That could be even higher for people having up to $20,000 forgiven.