Top 5 Things You Need to Know About the New Law Slashing Your Student Loan Tax
1. Sunset Clause: This new law is a temporary tax break for student loan forgiveness, set to expire in 2025. If you're planning on receiving loan discharge, you must act before the deadline or you will owe normal federal income tax on the forgiven amount.
2. Income Cap Chaos: The law only applies to borrowers earning under $100,000 as a single filer. If you make even $1 more in 2024, you are exempt from the tax break and will still pay full taxes on any forgiven debt.
3. State-Level Trap: While the new law eliminates federal tax on forgiven loans, over a dozen states have not conformed to this change. You may still get hit with a state income tax bill, even if you are federally exempt.
4. Retroactive Reimbursement Rule: The law includes a little-known clause that allows borrowers who paid taxes on forgiven loans in 2020 to file amended returns. You can get a refund on those past taxes, but the window to file closes on April 15, 2024.
5. Hidden Fee Loophole: The law does not apply to private student loans or federal loans from the old FFEL program. If you consolidated into a Direct Loan after the law passed, you are eligible. If you haven't, you are not covered and will owe the full tax bill.