Here’s what President Biden’s student loan forgiveness means for your taxes

If you’re poised to benefit from President Joe Biden’s up to $20,000 in student loan forgiveness, you may also be wondering if the erased debt will trigger a tax surprise come April.

The short answer is: It won’t, at least on your federal tax return. 

Biden on Wednesday announced that he will forgive $10,000 in federal student debt for most borrowers, limited to borrowers making less than $125,000 per year, or $250,000 for married couples filing together or heads of households.

He will also cancel up to $20,000 for Pell Grant recipients, Biden said in a tweet.

More from Personal Finance:
Biden cancels $10,000 in federal student loan debt for most borrowers
What to know about Biden’s forgiveness plan: How it works, when to apply
Timeline: Key events on the path to student loan forgiveness
Biden’s student loan forgiveness will cost taxpayers, prompt inflation: Experts
Student loan payment pause extended through December. What to know
Biden’s student loan forgiveness plan draws pushback from lawmakers and consumer groups

Tax-free forgiveness on up to $20,000 may offer significant savings, depending on your income, said certified financial planner Ethan Miller, founder of Planning for Progress, based in the Washington area. 

For example, let’s say you’re making $40,000 per year in the 12% federal tax bracket. If you receive $20,000 in tax-free student loan forgiveness, you’ll avoid $2,400 in federal taxes.

Student loan forgiveness can incur federal taxes …

… and you may owe state taxes on forgiven debt, too

How to handle student loan forgiveness on your return

How forgiveness affects the loan interest deduction 

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