March 24, 2023 8:32 pm

Local News

Will Wisconsin Residents Get Taxed for Potential Student Debt Forgiveness?

Credit: iStock

Armand Jackson

For the hundreds of thousands of Wisconsin residents who struggle with student debt, the prospect of student loan forgiveness seems like much needed relief. However, state residents may still have to pay for their student loans through taxes. According to the White House, The American Rescue Plan of 2021 makes any student loan forgiveness tax free through 2025, which would cover President Biden’s plan. In this plan, a federal loan borrower earning less than $125,000 a year (less than $250,000 for married couples) can receive $10,000 in student debt relief or $20,000 if they ever received a Pell Grant while in college, which is a need-based federal aid that is awarded to low-income students.

So while there would be no federal tax, Wisconsin is one of a handful of state’s whose tax codes do not adhere to the federal government’s meaning it can still issue a state tax on any potential student debt relief. However, the issue facing the state from collecting such taxes would be the lack of knowledge on who benefitted from student debt forgiveness. Milwaukee Journal Sentinel reported that the student loan servicers who would normally send a 1099-C tax form for debt cancellation have been instructed by the Internal Revenue Service (IRS) to not provide the form to borrowers or to state tax departments. 

Wisconsin Department of Revenue spokesperson Patty Mayers told the news outlet: “We would not know who has had debt forgiven, the tax system is built on a foundation of taxpayer compliance. We do our best to make information available to taxpayers, so they can be informed, and, in turn, compliant with tax laws.” According to the Journal Sentinel, Democratic Governor Tony Evers has requested tax exemptions for student loan forgiveness but there has been little to no response from the Republican-led legislature in this matter. Regardless, this issue for the state is sort of moot at the moment since President Biden’s student debt relief program has been blocked due to a few lawsuits. 

One of them, Biden v. Nebraska, was filed by a coalition of six Republican-led state attorney generals in Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina. The Eighth Circuit Court of Appeals, consisting of three Republican appointed judges, issued an emergency injunction temporarily blocking the program. 

Another lawsuit blocking the program was brought by Myra Brown and Alexander Taylor. Their case is funded by the Job Creators Network Foundation, a right-wing conservative group run by Republican donor Bernie Marcus. In this lawsuit, Trump appointed District Court Judge Mark T. Pittman decided to strike down and effectively block the debt relief program. 

Both lawsuits are heading to the U.S. Supreme Court where oral arguments will begin in February 2023. In the meantime, the Department of Education is no longer accepting applications for student debt forgiveness. While these legal disputes get settled in the coming months, federal student loan repayment pause has been extended again. As state and federal officials navigate these issues, Wisconsin student loan borrowers can find out more information about student loan forgiveness from the state Department of Revenue here