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Mississippi plans to tax student loan forgiveness
Posted by: Ombligo
Date: August 31, 2022 10:09AM
Mississippi is the first state to announce the forgiven debt will be taxed as income. Other states, including Arkansas and Wisconsin, are expected to do the same. the federal government will not be taxing it, but states aren't bound to follow suit.

So if you had the median debt amount of $17k forgiven, you will be on the hook for around $700 (4% state tax rate).

[www.businessinsider.com]



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Re: Mississippi plans to tax student loan forgiveness
Posted by: anonymouse1
Date: August 31, 2022 10:15AM
Slime.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: Numo
Date: August 31, 2022 10:26AM
Anything to stick it in Joe’s eye. This ought to endear state politicians to voters with college debt.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: RgrF
Date: August 31, 2022 11:19AM
Quote
Ammo
Anything to stick it in Joe’s eye. This ought to endear state politicians to voters with college debt.

Probably not in issue in Mississippi.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: Acer
Date: August 31, 2022 11:27AM
Technically their prerogative, but still a d*ck move.

Forgiveness is on paper, but taxes are paid in cash. I don't know about these states, but in PA it's a flat tax so refunds are minimal, you can't just reduce the refund to cover it.

They should make the forgiveness hit on January 1, 2023 to give time to kick it into the next year to give time to plan.



Edited 1 time(s). Last edit at 08/31/2022 11:34AM by Acer.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: $tevie
Date: August 31, 2022 11:31AM
Maybe Mississippi would like the money so that they can fix the water problem in Jackson.

j/k



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Re: Mississippi plans to tax student loan forgiveness
Posted by: Lemon Drop
Date: August 31, 2022 12:03PM
Not just Mississippi :

"Factoring in $10,000 of debt relief, below is the maximum tax liability student-loan borrowers could face in the 13 states identified by the Tax Foundation:  

Arkansas: $550Hawaii: $1,100Idaho: $600Kentucky: $500Massachusetts: $500Minnesota: $985Mississippi: $500New York: $685Pennsylvania: $307South Carolina: $700Virginia: $575West Virginia: $650Wisconsin: $530 

Those tax liabilities could double for borrowers who receive up to $20,000 in debt forgiveness, Walczak noted."

[www.cbsnews.com]
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Re: Mississippi plans to tax student loan forgiveness
Posted by: Bill in NC
Date: August 31, 2022 12:04PM
Are the feds issuing 1099s?

If not there's no way for a state to know about it.

[www.mcglinchey.com]
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Re: Mississippi plans to tax student loan forgiveness
Posted by: mattkime
Date: August 31, 2022 12:23PM
Hm, while it seems like a 'jerk move' apparently this is how debt forgiveness is treated under the tax code. I'm not sure if its always a jerk move, maybe some rich people get a lot of loans forgiven.



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Re: Mississippi plans to tax student loan forgiveness
Posted by: JoeH
Date: August 31, 2022 12:49PM
Depends on how the debt cancellation is handled. Some methods leave the person whose debt was forgiven with an implied income that can be taxed. Other methods don't. That is one area that takes an accountant or legal professional to determine the best way to have a debt cancelled and not incur a tax liability.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: Acer
Date: August 31, 2022 01:39PM
Perhaps some can apply the forgiveness against interest that has been paid or accrued. Generally expenses, of which interest is one, at least on a schedule C for example; are deducted against receipts before gain is computed.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: vision63
Date: August 31, 2022 02:11PM
Man, I'd need to sit down with a glass of water to think about it.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: mattkime
Date: August 31, 2022 02:48PM
Oh, it should be mentioned that this is often a factor in existing loan forgiveness programs.

Lets say you go to law school and decide to work as a public defendant and have $200k in loans (is that too low??). You work for 10 years and the loans are forgiven. Now you get a tax bill at about 35% because you had a $200k windfall when your loans were forgiven. Can you afford the $70k tax bill? Of course not, now you're on a payment plan with the IRS.



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Re: Mississippi plans to tax student loan forgiveness
Posted by: JoeH
Date: August 31, 2022 02:58PM
Quote
mattkime
Oh, it should be mentioned that this is often a factor in existing loan forgiveness programs.

Lets say you go to law school and decide to work as a public defendant and have $200k in loans (is that too low??). You work for 10 years and the loans are forgiven. Now you get a tax bill at about 35% because you had a $200k windfall when your loans were forgiven. Can you afford the $70k tax bill? Of course not, now you're on a payment plan with the IRS.

Except your example is one that already is exempt from the loan forgiveness being considered taxable. A public defender would be working for a government agency, if they fulfill the requirements of making their necessary payments for 10 years, the balance cancelled under the Public Service Loan Forgiveness program is not considered taxable by the IRS.
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Re: Mississippi plans to tax student loan forgiveness
Posted by: mattkime
Date: August 31, 2022 03:02PM
Quote
JoeH
the balance cancelled under the Public Service Loan Forgiveness program is not considered taxable by the IRS.

Huh, I wonder if that changed since I looked at this about 10 years ago. Anyway, glad to see they made that change.



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