Biden student loan forgiveness will be taxable income in North Carolina

Student loans forgiven under a plan outlined by President Joe Biden last week will be subject to state taxes, the North Carolina Department of Revenue announced on Wednesday.

Borrowers who make up to $125,000 annually — or $250,000, if they are married — could see up t0 $10,000 of their federal student debt forgiven under a plan the Biden administration unveiled on Aug. 24. Low-income borrowers who received Pell Grants for their education are eligible for up to another $10,000 in forgiveness under the plan.

The debt cancellation is exempt from federal income tax because of a provision in the American Rescue Plan passed by the U.S. Congress. The North Carolina General Assembly, however, did not adopt the same provision in relation to the state income tax, so student loan forgiveness is “currently considered taxable income in North Carolina,” per the Department of Revenue.

“The Department of Revenue is monitoring any further enactments by the General Assembly that could change the taxability of student loan forgiveness in North Carolina,” reads a press release.

According to Washington, D.C.-based nonprofit the Tax Foundation, North Carolina is one of five states that could tax student loans forgiven under the Biden plan as personal income.

“Note that, while the debt—if retained—would have been paid over a period of years, the debt cancellation is included in income in the year in which it is taxed,” the Tax Foundation post reads. “In the coming weeks and months, we are likely to see additional states issue guidance on the treatment of discharged student loan debt, and perhaps even adopt legislative fixes, causing this list to dwindle further.”

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Biden student loan forgiveness will be taxable income in North Carolina