Student loan debt forgiveness: Will you be taxed in NJ?
A reminder to New Jersey taxpayers: The new Student Loan Relief plan signed into law by President Biden last week will not incur federal income tax or New Jersey state income tax.
The New Jersey Society of Certified Public Accountants reports that while some states consider student loan debt forgiveness taxable income, New Jersey does not.
According to the New Jersey Division of Taxation, the cancellation of debt is not a category of income under the Gross Income Tax Act. Therefore, it is not taxable for New Jersey gross income tax purposes.
On the federal level, the American Rescue Plan of 2021 made student loan forgiveness tax-free through 2025, and the law covers Biden’s forgiveness too, according to a fact sheet from the White House.
“This is a commendable plan to assist those just starting out in their careers who may have considerably high amounts of debt or those who have been out of college a few years and are still struggling with repayment,” says Ralph Albert Thomas, executive director at the NJCPA.
The typical New Jersey undergraduate student has about $35,000 in debt, bringing New Jersey's total student loan debt burden to $42.5 billion, according to the latest data from Education Data Initiative.
The three-part loan forgiveness plan:
— Provides targeted debt relief by canceling up to $20,000 in student loan debt of Pell Grant recipients who earn less than $125,000 annually ($250,000 married couples), canceling up to $10,000 in debut for those Americans earning $125,000 annually ($250,000 married couples), and extending the pause of federal student loan repayment one final time through Dec. 31, 2022. Borrowers should expect to resume payments in January 2023.
— Makes the student loan system more manageable for current and future borrowers by cutting monthly payments in half for undergraduate loans, fixing the broken Public Service Loan Forgiveness (PSLF) program by proposing a rule that borrowers who have worked at a nonprofit, in the military, or federal, state, tribal or local government, and receive appropriate credit toward loan forgiveness.
— Protect future students and taxpayers by reducing the cost of college and holding schools accountable when they raise prices.
Cape May, NJ: 15 wonderful places to visit