People with federal student loan bills are likely to have an unusual tax season this year.
It is unclear whether the Supreme Court will uphold the Biden administration's plan to cancel up to $20,000 in student debt for tens of millions of Americans.SourceMoneyGuru-https://www.mgkx.com/4006.html
The pandemic-era policy also pauses student loan bills for most borrowers.SourceMoneyGuru-https://www.mgkx.com/4006.html
Here's what this all means for your Uncle Sam tax bill.SourceMoneyGuru-https://www.mgkx.com/4006.html
Student loan interest is probably not deductible
Nearly 13 million taxpayers took advantage of the student loan interest deduction before the Covid pandemic, which allows borrowers to deduct up to $2,500 per year in interest payments.SourceMoneyGuru-https://www.mgkx.com/4006.html
You do not have to itemize your taxes to qualify for the deduction, which lowers your adjusted gross income.SourceMoneyGuru-https://www.mgkx.com/4006.html
Most federal student loan borrowers have not made a payment on their debt since March 2020 because the U.S. Department of Education has allowed them to pause their monthly bills without incurring interest, which means they don't qualify for the deduction, said higher education expert Mark Kantrowitz.SourceMoneyGuru-https://www.mgkx.com/4006.html
According to Kantrowitz, student loan interest deductions can only be claimed based on amounts actually paid.SourceMoneyGuru-https://www.mgkx.com/4006.html
Since your money has been going directly to your debt's principal, you probably won't be able to claim the full deduction even if you have continued to make payments during the pause. Kantrowitz said the break is only for interest payments, which have been suspended for years now.SourceMoneyGuru-https://www.mgkx.com/4006.html
(The Biden administration said the bills would resume 60 days after litigation over its forgiveness plan is resolved or at the end of August, whichever comes first.)SourceMoneyGuru-https://www.mgkx.com/4006.html
It is still possible for some people to qualify for the break.SourceMoneyGuru-https://www.mgkx.com/4006.html
Students who owe student loans that aren't eligible for the government's payment pause, including commercially held Federal Family Education Loans (FFELs) or private loans, may have made interest payments that can be deducted.SourceMoneyGuru-https://www.mgkx.com/4006.html
Betsy Mayotte, president of The Institute of Student Loan Advisors, suggests contacting your loan servicer to determine if you have potential interest to claim.SourceMoneyGuru-https://www.mgkx.com/4006.html
Individuals and couples earning more than $85,000 and $175,000 in 2022 are not eligible for the break, according to Mayotte.SourceMoneyGuru-https://www.mgkx.com/4006.html
Mayotte noted that borrowers' eligibility for the deduction could also be reduced if their employer paid on their student loans as a work benefit.SourceMoneyGuru-https://www.mgkx.com/4006.html
The lender reports your interest payments to the IRS on a form called a 1098-E, and you should receive a copy as well. Depending on your tax bracket and how much interest you paid, the deduction could be worth up to $550 a year.SourceMoneyGuru-https://www.mgkx.com/4006.html
Taxes are unlikely to increase as a result of loan forgiveness
Next spring, borrowers shouldn't have to worry about a federal tax bill if the Supreme Court approves the administration's debt relief plan.SourceMoneyGuru-https://www.mgkx.com/4006.html
The American Rescue Plan of 2021 made student loan forgiveness tax-free through 2025 - and the law covers Biden's forgiveness, too.SourceMoneyGuru-https://www.mgkx.com/4006.html SourceMoneyGuru-https://www.mgkx.com/4006.html
