Interest charge

NC can charge nearly $1,000 for loan forgiveness

RALEIGH, NC (WGHP) — The White House’s student loan forgiveness plan may erase a large amount of debt for many North Carolina residents, but it may come with out-of-pocket costs.

On Wednesday, the North Carolina Department of Revenue confirmed that student loan forgiveness is considered taxable income in North Carolina.

When President Joe Biden introduced the plan, the White House indicated that the student loan forgiveness would be exempt from federal income tax. As part of the U.S. bailout, Congress enacted IRC 108(f)(5) of the Internal Revenue Code to expand the types of student loan exemptions that would not be treated as taxable income for purposes federal income tax.

“The North Carolina General Assembly has not adopted IRC Section 108(f)(5) for state income tax purposes,” the NCDOR said in an announcement Wednesday. . “Therefore, student loan forgiveness excluded under IRC 108(f)(5) is currently considered taxable income in North Carolina.”

The General Assembly has the power to change this code, but it is unclear whether lawmakers will do so. The General Assembly changed state tax laws so that Paycheck Protection Program loans aren’t taxable during the pandemic, but that of course doesn’t guarantee lawmakers would do it again for the cancellation of student loans. The North Carolina House and Senate are scheduled to meet on September 20.

“The Department of Revenue is monitoring any new enactments by the General Assembly that may change the taxation of student loan forgiveness in North Carolina,” the NCDOR said.

For 2022, the North Carolina personal income tax rate is 4.99%. If student loan forgiveness is processed before the end of the year, borrowers who receive $10,000 in forgiveness could be charged approximately $499 in North Carolina personal income tax. For borrowers who receive $20,000, the estimated personal income tax in North Carolina would be $998.

The tax rate is expected to drop to 4.75% for 2023, according to PWC, which could reduce the tax burden to $475 for recipients of the $10,000 rebate or $950 for recipients of the 20 rebate. $000. That said, interest on federal student loans is also expected to resume at the end of 2022.

So the question is, when will student loan forgiveness be processed?

The Ministry of Education plans to launch an application for borrowers who need to submit information in early October 2022, and the deadline is December 31, 2023. We don’t know what the form will look like, but officials have indicated that it will be short. After submitting this form, Education Secretary Miguel Cardona says you can expect relief within four to six weeks.

It has been reported that student loan forgiveness could be automatic for borrowers whose information the Department of Education already has. In this case, it is not known when the pardon would be processed.

Until application opens in October or the Department of Education releases more details, borrowers can’t do much. You can, however, sign up to be notified when the app is available through the Department of Education by completing this form.