This tax season might look a little different for student loan borrowers across the country for 2023. Biden’s plan for the cancellation of up to $20,000 in student debt for millions of Americans has been on hold because the supreme court is still deciding if the policy for relief is legal. Also, most bills for loan borrowers remain on pause due to the pandemic.
Most Likely No Student Loan Interest Deduction
Before payments were put on hold for the pandemic, almost 13 million taxpayers took advantage of the student loan interest deduction. The deduction allowed borrowers to deduct up to $2,500 a year in interest payments they’ve made on private or federal loans. Since March 2020, most people with federal student loans have been able to pause their monthly payments without incurring interest costs. However, most borrowers haven’t paid their debts and so don’t qualify for the deduction, said higher education expert Mark Kantrowitz.
“You can claim the student loan interest deduction based only on amounts paid,” Kantrowitz said.
More Information
It is important to keep in mind that there are income phaseouts for the deduction as individuals who earned above $85,000 and couples that made more than $175,000 in 2022 are not eligible. Borrowers’ eligibility for the deduction could also be reduced if their employer made payments on the loan as a work benefit.
Forgiveness Unlikely to Raise Taxes
If the Supreme Court deems Biden’s plan legal, borrowers shouldn’t expect to get a federal tax bill next spring. This is due to the American Rescue Plan of 2021 making student loan forgiveness tax-free through 2025, according to a fact sheet from the White House. However, there is still a chance you can see a state tax on any forgiven debt, depending on where you live.
Wrap Up
Student Loans can be stressful for many looking to finally pay those final bills. However, hopefully, this makes things a little easier to understand. We will be keeping our eyes and ears open for any new news on the Supreme Court’s Decision on Biden’s forgiveness plan.