Gov. Gavin Newsom called on the California legislature on Saturday to act quickly to prevent student loan borrowers from having to pay up to $20,000 in state income taxes on federal debt forgiveness.
In August, the Biden administration announced a drastic one-off loan forgiveness program It will wipe out thousands of dollars in federal direct loan debt. A borrower who meets the program’s income limits must pay less than $125,000 for individuals or $250,000 for couples, and be exempt from debt up to $10,000, and up to $20,000 if he receives a federal Pell Grant. will be
Tax authorities often treat forgiven debts as income. Under federal law, the amount forgiven through Biden’s initiative will be ignored by the Internal Revenue Service.However under current state lawanalysts say, is treated as taxable income in California.
Newsom said a preliminary budget to be submitted in January would include a proposal to exempt the forgiven debt from state taxes. He said the change could save up to $1.3 billion for his more than 3.5 million borrowers in the state, including more than 2.3 million Pell Grant recipients.
“California residents exempted from student debt should not be taxed for it,” Newsom said in a statement.
Newsom’s position aligns him with the top Democrats in the legislature.State Legislative and Senate Leaders murmured In September, they will make the exempt amount non-taxable.
U.S. Department of Education Begins Acceptance Application for loan forgiveness Last month, it was due to start paying off its debt by the end of the year. But a legal battle casts a dark cloud over its future.
The program is being contested in several courts around the country by Republican officials and conservative groups. Judges ruled that plaintiffs were ineligible to sue, and he stayed at least two cases, but the Federal Court of Appeal ruled that Department of Education temporarily suspends loan forgiveness Meanwhile, six Republican-led state injunctions for debt relief are being considered.
The ministry said it will process applications and identify borrowers automatically eligible for the debt relief program while the legal battle continues.
This story originally appeared los angeles times.