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Are you aware that loan forgiveness is regarded as income? Some may find that surprising, especially those who are anticipating the cancellation of their student loan debt.
Any person with school debt who earns less than $125,000 annually may be eligible for up to $10,000 in student loan debt forgiveness under President Biden’s proposal. You are eligible for an additional $10,000 in debt forgiveness if you received a Pell Grant.
Although those are the national headlines, the fine print in North Carolina states that you must pay $525 in taxes for every $10,000 used for debt relief.
Loan forgiveness is treated as taxable income. According to the American Rescue Plan, which is federal legislation, forgiven student loan debt is not subject to federal income tax. There are no tax consequences for student loan debt until 2026.
