Up to $20,000 in forgiveness will be available to Pell Grant recipients.
Details of the new plan are still emerging.
Will you be stuck with a big tax bill?
The short answer is no at least on your federal tax return.
State taxes could be a different story.
Read on to learn more.
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Will You Owe Taxes On Your Forgiven Student Debt?
For federal income tax purposes, no.
Thats not the case for borrowers who qualify for widespread forgiveness.
You wont need to report any forgiven federal student loan debt to the IRS next year.
Will You Still Have To Pay State Taxes?
While the American Rescue Plan excludes student debt forgiveness from federal taxation, state taxes may still apply.
Some states already follow federal tax income guidelines.
But other states use their own definition of income.
That uncertainty can be frustrating for borrowers.
But Persichitte said its best to sit tight until more information is available.
Theres a lot we dont know yet.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
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