September 12, 2022
Terranova & Associates, LLC strives to keep our clients up to date regarding tax
changes that will impact them. U.S. Department of Education have announced a
three-part plan to help working and middle-class federal student loan borrowers’
transition back to regular payment as pandemic-related support expires. This
plan includes loan forgiveness of up to $20,000. Borrowers and families may be
asking themselves “what do I have to do to claim this relief?” This page is a
resource to answer those questions and more. There will be more details
announced in the coming weeks. To be notified when the process has officially
opened, please watch for our emails.
In addition to the above, the IRS has recently released a list of exceptions for the
inclusion of a cancelled student loan debt, in income. Generally, had a taxpayer's
student loan been cancelled or repaid by someone else, the taxpayer was
mandated to include the cancelled or repaid loan amount as part of their gross
income, for tax purposes. However, The American Rescue Plan Act of 2021 has
modified the treatment of student loan forgiveness for discharges in 2021 through
2025, wherein the taxpayer may be able to exclude the repaid or cancelled loan
amount from his gross income, if the loan could be categorized as one of the
following:
A loan for postsecondary educational expenses.
- A private education loan.
- A loan from an educational organization described in Code Sec.
170(b)(1)(A)(ii).
- A loan from an organization exempt from tax under Code Sec. 501(a) to
refinance a student loan
As a refresher, the following is a summary of the Plan:
1. Final extension of student loan repayment through December 2022, with
payments resuming January 2023, and this pause in payments is
automatic.
2. U.S. Department of Education will provide up to $20,000 in debt
cancellation to Pell Grant recipients with loans held by the Department of
Education and up to $10,000 in debt cancellation to non-Pell Grant
recipients. Borrowers are eligible for this relief if their individual income is
less than $125,000 or $250,000 for households. In addition, borrowers
who are employed by non-profits, the military, or federal, state, Tribal, or
local government may be eligible to have all their student loans forgiven
through the Public Service Loan Forgiveness (PSLF) program. To be
eligible:
a. Your annual income must have fallen below $125,000 (for
individuals) or $250,000 (for married couples or heads of
households)
b. If you received a Pell Grant in college and meet the income
threshold, you will be eligible for up to $20,000 in debt cancellation.
c. If you did not receive a Pell Grant in college and meet the income
threshold, you will be eligible for up to $10,000 in debt cancellation.
3. What action is required to receive loan forgiveness:
a. Borrowers may be eligible to receive relief automatically because
relevant income data is already available to the U.S. Department of
Education.
b. If the U.S. Department of Education does not have your income
data - or if you do not know if the U.S. Department of Education has
your income data, the Administration will launch a simple
application in the coming weeks.
c. The application will be available before the pause on federal
student loan repayment sends on December 31st.
As additional information becomes available, we will provide additional updates.
We are available for consultations regarding this and other tax matters if you
need assistance, please contact us. We are excited to welcome the new clients
that have retained our services!
This is our update as of this time and we will strive to keep you informed; please
keep in mind this is a fluid topic and subject to change at any time.
This information should be used to strategically navigate through the months
ahead. We are in the office and are happy to assist you.
Please feel free to share this with your relatives and friends and remember we
are here to help our clients.
Terranova & Associates, LLC.
Thomas D. Terranova, Jr., CPA, PFS, CITP