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NC taxes your student loan forgiveness: You'll pay $525 for every $10,000 forgiven

The American Rescue Plan allows for student loan forgiveness not to be taxed, but NC law sees debt forgiveness as income which means taxes apply.

GREENSBORO, N.C. — Did you know loan forgiveness is considered income? That may come as a surprise to folks, especially those who are looking forward to student loan debt forgiveness.

According to President Biden’s plan, any one student debt holder who makes less than $125,000 a year can get up to $10,000 in student loan debt forgiveness. If you have a Pell Grant, you can get an additional $10,000 in debt forgiveness.

Those are the headlines nationally, but the fine print here in North Carolina is that you'll pay $525 in taxes on each $10,000 in debt relief money.

In North Carolina, you'll pay $525 in taxes for every $10,000 forgiven. 

“I don't think folks should freak out, but I do think they need to let their legislature or state senator know you don't want to be taxed on any of your loan forgiveness, and the state needs to go along with what the federal law says,” said Ryan Dodson of Liberty Tax Services.

Forgiven loans are considered taxable income. The American Rescue Plan - that's the federal law - says forgiven student loan debt is not taxable at the federal level. There are no tax consequences on student debt relief until 2026.

Will North Carolina change their tax law? It's happened before. 

North Carolina would have to change their tax law. Dodson says the state has changed it before in situations like this.

"For example, when it comes to all the Coronavirus PPE loans that came out, NC was going to tax everyone on that forgiveness, eventually they came around and said nope, we're not going to tax you on any of that loan forgiveness and it's considered tax-free in the state of NC as well. My expectation is they'll do the same here," said Dodson. 

The NDDOR released this statement:

As part of the American Rescue Plan, Congress enacted Section 108(f)(5) of the Internal Revenue Code to expand the types of student loan forgiveness that would not be treated as taxable income for purposes of federal income tax.

The North Carolina General Assembly did not adopt Section 108(f)(5) of the IRC for purposes of the state income tax. Therefore, student loan forgiveness excluded pursuant to IRC 108(f)(5) is currently considered taxable income in North Carolina. See N.C. Stat. 105-153.5(c2)(22).

The Department is monitoring any further enactments by the General Assembly that could change the taxability of student loan forgiveness in North Carolina.

2 Wants To Know reached out to several of our state legislators in our area to see what they knew about this and if it would be coming up in discussion. We'll keep you posted.


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