Federal student loan forgiveness could be taxed as income in some states

Austin Hammond and his wife may be able to buy a home sooner than expected because of the debt relief President Joe Biden announced in August.  

But Hammond, a 25-year-old nonprofit outreach coordinator in Wisconsin, was surprised to learn that, under current state law, he will have to pay income tax on his $10,000 of

debt forgiveness even though it’s exempt from federal taxes. “I think it would be really disappointing to have this opportunity to help working class people,

and then have the state legislature cut into that by making them pay a tax on something that is supposed to give them a head start and a foot forward,” he said. Start the

day smarter. Get all the news you need in your inbox each morning. Biden's action will wipe out nearly one third of the $29,000 in federal student loan debt

Hammond had after graduating from the University of Wisconsin-Oshkosh in 2021. But he's in one of a handful of states where, at least for now, borrowers getting relief may have to

factor in a higher tax bill. Others include Minnesota, North Carolina, Mississippi and Arkansas.  That difference among states adds to the complexity of a new

program that an estimated 43 million borrowers are trying to figure out and could fuel political battles in states where changing the taxability will require cooperation from

Republicans. Democrats say they’re easing a crushing burden on the too-high number of people who have to incur large debts to continue their education past high

school. Republicans are casting the debt relief as elitist and unfair to the plumbers, waitresses and trucker drivers who never went to college.