Sunday, December 4, 2022

Virginia Won’t Tax Forgiven Student Loans, Despite Reports

(Freeimages.com)

RICHMOND — Virginia will not tax as income student loans forgiven under a new plan announced by President Joe Biden last week, according to representatives of two state agencies. 

“The amount of student loan debt that was forgiven will be left out of federal adjusted gross income, and, by extension, Virginia taxable income, without any further action by the General Assembly,” wrote Stephen Kindermann, a finance attorney in the Virginia Division of Legislative Services, in response to an inquiry from Del. Marcus Simon, D-Fairfax.

Heather Cooper, a spokeswoman for Virginia Department of Taxation, also said in an email that “to the extent that student loans forgiven through the recently announced student loan forgiveness program are exempt from federal taxation … they would not be taxable on the Virginia income tax return.”

Several national news reports have listed Virginia as one of roughly a dozen states where residents who have some or all of their student loans forgiven under the new policy could still be subject to state taxation of the forgiven loans.

But Virginia in 2022 conformed part of its tax code to a provision of the American Rescue Plan Act that excluded student loans that have been forgiven from being taxed as gross income through 2025.

Simon said confusion was likely linked to Virginia’s decision to not conform its state tax code with all aspects of the federal tax code.

However, he said that not only had the state followed the federal government on the loan forgiveness exemption, but fiscal impact estimates had accounted for the resulting loss of state revenues.

Under the policy announced by Biden Wednesday, up to $20,000 in federal student loan debt will be canceled for Pell Grant borrowers, and up to $10,000 will be canceled for all other borrowers whose income is less than $125,000 for an individual and $250,000 for a household.

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