Wisconsinites Likely Required To Pay Taxes On Forgiven Student Debt

By Henry Redman, Wisconsin Examiner

August 31, 2022

Wisconsinites who benefit from President Joe Biden’s student loan forgiveness plan are going to see a higher bill when they file their state income taxes next year.

Under the plan, borrowers who earn less than $125,000 will have at least $10,000 in student loan debt wiped away. Borrowers who received federal Pell grants — meant for low-income borrowers who demonstrate “exceptional” financial need — are eligible to have up to $20,000 in debt forgiven.

But in Wisconsin, this loan forgiveness counts as taxable income, meaning borrowers will have to pay hundreds of dollars more in taxes. Wisconsin is one of six states in which forgiven student loan debt is likely to be taxed, according to the Tax Foundation, a Washington, D.C.-based think tank.

Most states follow the federal tax code, which last year was updated as part of the American Rescue Plan Act (ARPA) to temporarily exempt student debt forgiveness from being taxed.

However 13 states, including Wisconsin, stray from the federal tax code.

Wisconsin is in line with the federal code as of Dec. 31, 2020. Because this was before the ARPA was passed, the discharge of the student debt still counts as taxable income.

A Tax Foundation official told the Milwaukee Journal Sentinel that most Wisconsin borrowers will be taxed about $530 on the debt discharge.

There is still time to change the rules before tax filings are due next year and Democratic Gov. Tony Evers said he’s in favor of addressing the issue in the next state budget, but Republican leadership in the Legislature has stayed quiet over their plans.

One Republican, Rep. Adam Neylon (R-Pewaukee), told the Journal Sentinel that he opposed eliminating the tax.

“This might be the first tax break I’d oppose,” he said.

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