Unlike Mississippi, Maine Will Not Tax Forgiven Student Loans

By Christopher Burns, Bangor Daily News, Maine (TNS)

Mainers who see their student debt forgiven under President Joe Biden’s plan won’t get hit by a surprise tax bill.

The same can’t be said for the people of Mississippi, where the state plans to count that forgiven debt as income.

Forgiven debt is typically counted as income for purposes of taxation. For holders of student loans, that could translate into a $500 to $1,100 tax bill for that one-time influx of “income,” according to Bloomberg.

Under Biden’s plan, unveiled last week, borrowers who earn less than $125,000 a year, or families earning less than $250,000, would be eligible for the $10,000 loan forgiveness, while recipients of Pell Grants, which are awarded to undergraduates with high financial need, are eligible for another $10,000 in forgiveness.

A provision of the American Rescue Plan Act of 2021 exempts forgiven student debt from federal taxation from 2021 through 2025, but whether it’s subject to state taxes depends on whether individual states adopt, or “conform,” to the changes in the federal tax code.

That’s exactly what Maine has done. Maine included that among the federal tax code changes it opted to adopt in the most recent round of tax conformity, according to Sharon Huntley, a spokesperson for the Maine Department of Administrative and Financial Services.

Tax conformity is typically a perfunctory issue for the Legislature, though it has often become a venue for lawmakers to spar over larger debates in more recent years.

Beyond Maine, Hawaii, Idaho, Kentucky, New York, Pennsylvania, and Virginia have exempted forgiven student debt from taxation, while California, Minnesota and Wisconsin are exploring that option, Bloomberg reported.

Borrowers in Mississippi won’t be as fortunate, as the state’s Department of Revenue plans to count that debt relief as income come tax time.

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