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Indiana becomes latest state to confirm it will tax Biden admin’s student loan forgiveness

Photo by STEFANI REYNOLDS/AFP via Getty Images

On Tuesday, Indiana became the latest state to confirm that it will tax the Biden administration’s federal student loan forgiveness. The Indiana Department of Revenue told the Associated Press that it would require citizens to list their student debt relief as taxable income.

The Biden administration announced plans to cancel up to $10,000 per borrower of federal student loan debt last month. Individuals making $150,000 per year or less and couples making $300,000 per year or less would be eligible. The program could alleviate federal student loan debt for more than 40 million Americans.

The communications manager for the Indiana Department of Revenue, Natalie Rodriguez, told the Associated Press that residents would be required to pay both state and county taxes for the debt relief under current Indiana law. The state’s current tax rate is 3.23%, but county tax rates vary.

Rodriguez stated that individuals receiving $10,000 in loan forgiveness could pay as much as $323 in state taxes. Individuals eligible to receive $20,000 in loan debt relief could pay up to $646 in state taxes.

The communications manager told the news outlet that residents of Marion County, which includes Indianapolis, could pay an additional $200 to $400 in county taxes.

Indiana House Speaker Todd Huston (R) stated that he expects “conversations to continue” regarding the tax policy during the next legislative session in January 2023.

State Rep. Gregory W. Porter (D) announced that he plans to creating legislation to eliminate state income tax on student debt relief. Porter said, “I can’t say I’m surprised Indiana has chosen to take a punitive stance on a policy meant to give working-class Americans relief, but there’s still time to change this.”

Tax Foundation, a think tank, reported that current laws in Mississippi, Minnesota, Wisconsin, Arkansas, and North Carolina mandate that the forgiven loans be taxed.

Bloomberg confirmed that New York, Pennsylvania, Kentucky, Virginia, Hawaii, and Idaho would not tax the student debt relief. Arkansas, California, Massachusetts, and South Carolina are “still reviewing” whether the loan forgiveness will be subject to state taxes.

The American Rescue Plan, enacted in March 2021, declared that student debt relief would not be treated as taxable income on the federal level.

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