Newsom urges California legislators not to tax forgiven federal student loans

LOS ANGELES — Gov. Gavin Newsom called on the California legislature on Saturday to act quickly so student loan borrowers won’t have to pay state income taxes with federal debt forgiveness of up to $20,000.

In August, the Biden administration announced a sweeping, one-time loan forgiveness program that would wipe out thousands of dollars of federal direct loan debt. Borrowers who meet the program’s income limits are less than $125,000 for individuals and less than $250,000 for couples, with debt forgiveness of up to $10,000, up to $20,000 if they receive a federal Pell Grant. increase.

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.

“No taxes should be imposed on Californians who are exempt from student debt,” Newsom said in a statement. He “looks forward to working closely with Congress to get this done through early action.”

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. A judge stayed at least two lawsuits because the plaintiffs were ineligible to file a lawsuit, while a federal appeals court is considering his six-state, Republican-led request for an injunction against debt relief. , temporarily suspended loan forgiveness by the Ministry of Education.

The ministry said it will process applications and identify borrowers automatically eligible for the debt relief program while the legal battle continues.

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