The Internal Revenue Service (IRS) generally requires that you report a forgiven or canceled debt as income for tax purposes. But forgiven student loan debt is different.
The American Rescue Plan (ARP) Act specifies that student loan debt discharged between 2021 and 2025, and incurred for postsecondary education expenses, will not be counted as income, and therefore does not incur a federal tax liability.
This includes federal Direct Loans, Family Federal Education Loans (FFEL), Perkins Loans, and federal consolidation loans. Additionally, non-federal loans such as state education loans, institutional loans direct from colleges and universities, and even private student loans also qualify.
However, some states have indicated that they still count canceled student loans as taxable income. Read on for more information about which discharged student debt is taxable and by whom.
Different Student Loan Forgiveness Programs
Federal student debt can be canceled via an income-driven repayment plan (IDR) or forgiveness programs.
While President Joe Biden’s plan to offer federal debt cancellation of up to $20,000 to those with qualifying income failed — struck down by the U.S. Supreme Court — other forms of student loan forgiveness have been strengthened.
In October 2023, the White House announced at least $127 billion in student loan relief for nearly 3.6 million Americans:
- $5.2 billion in additional debt relief for 53,000 borrowers under Public Service Loan Forgiveness programs.
- Nearly $2.8 billion in new debt relief for nearly 51,000 borrowers through fixes to income-driven repayment. These are borrowers who made 20 years or more of payments but never got the relief they were entitled to.
- $1.2 billion for nearly 22,000 borrowers who have a total or permanent disability who have been identified and approved for discharge through a data match with the Social Security Administration.
Whose Student Loan Cancellation Is Not Federally Taxed?
As stated earlier, under the provisions of the ARP Act, any student debt (private or federal) for post-secondary education that was or is forgiven in the years of 2021 through 2025 will not be federally taxed. This means that the borrowers just listed above were not required to report their discharged loan amount as earned income, and therefore taxable.
Outside of the special five-year window of tax exemption provided by the ARP Act, participants in the Public Service Federal Loan program who receive forgiveness also don’t have to worry about paying taxes on the canceled amount. The program explicitly states that earned forgiveness through PSLF is not considered taxable income.
(Learn more: Personal Loan Calculator)
Whose Student Loan Cancellation Is Federally Taxed?
Borrowers who receive loan cancellation after participating fully in an income-driven loan repayment plan can generally expect to pay taxes. Again, those whose debt was discharged in 2021 and 2022, or will be discharged in 2023, 2024, or 2025, will not need to pay federal taxes on their forgiven loans.
Forgiven amounts that are taxable are treated as earned income during the fiscal year it was received. Your lender might issue tax Form 1099-C to denote your debt cancellation.
Which States Have Said They Will Tax Forgiven Student Loans?
Typically, states follow the tax policy of the federal government. But some states have announced that their residents must include their forgiven or canceled student loan amount on their state tax returns.
As of October 2023, the states that say forgiven loans are taxable are Mississippi, North Carolina, Indiana, Wisconsin, and possibly Arkansas, depending on an upcoming vote in its legislature. More states could decide to do so.
It’s important to consult a qualified tax accountant or someone knowledgeable about forgiveness of student loans in your state to confirm the latest information of how much you owe.
Preparing to Pay Discharged Student Loan Taxes
If you’re anticipating a tax liability after receiving loan forgiveness, there are a few steps you can take today to get ready.
Step 1: Estimate Your Bill
The first step when bracing for a student loan forgiveness tax bill is calculating how much you might owe come tax season. This factor can be influenced by factors including the type of forgiveness you are receiving and the forgiven amount.
To avoid sticker shock, you can use a student loan forgiveness tax calculator, like the Loan Simulator on StudentAid.gov. It lets you see how much of your student loan debt might be forgiven, based on your projected earnings.
Step 2: Choose the Right Plan
Enrolling your federal student loans into an IDR plan can help you keep your monthly payments to a manageable amount while you’re awaiting loan forgiveness. All of these repayment plans calculate your monthly payment based on your income and family size.
The newest IDR program is the Saving on a Valuable Education (SAVE) plan, which offers unique benefits that will lower payments for many borrowers, to as low as 5% of disposable income in 2024 for those who qualify.
Step 3: Prioritize Saving
If you’re expecting loan forgiveness after 2025, it might be advantageous to allocate extra cash flow toward a dedicated tax savings fund. Incrementally setting money aside over multiple years can ease the burden of a sudden lump sum tax bill down the line.
Paying Taxes on Canceled Student Loan
If you can’t afford to cover an increased tax bill, contact the IRS to discuss your options. Inquire about payment plans that can help you pay smaller tax payments over a longer period of time. However, be aware that fees and interest will likely accrue.
The Takeaway
Thanks to a special law passed by Congress in 2021, post-secondary education loans forgiven from 2021 through 2025 will not count as earned income and will not be federally taxed. That said, state taxes may be due, depending on where the borrower lives.
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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8 holly-jolly, high-paying part-time jobs for extra holiday dough
Whether you’re in college or caring for children or pursuing an unpaid passion, there are many reasons why someone would want some flexibility in their career.
But what does a flexible schedule mean exactly? According to the U.S. Department of Labor, a flexible schedule is one that allows people to work outside traditional 9 to 5 office hours. Aside from that, situations vary depending on the role and employer.
Workers may be able to choose the time they arrive at and depart work, for instance. With certain flexible work policies, employees still have to work a set number of hours per pay period or be available during a daily “core time.” So while the employee may not have to show up at 9am on the dot and leave at exactly 5pm, they may need to at least show up by 11am and stay until after 3pm. However, this type of shortened schedule could work for many people, including parents who are self-employed.
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Flexible part-time jobs can be logistical, analytical, creative, or involve a skilled trade. When it comes time to search for flexible-schedule jobs, keep in mind these tips.
- Stay focused. Job applicants who know what they’re looking for and what they can offer an employer can plan a more effective job search. If someone knows they have to have a flexible part-time schedule in order to accept a job, they can save a lot of time and energy by only applying for jobs that offer that. Trying to convince an employer to change their staffing plans is an uphill battle.
- Prepare to hear No. Know that it will take a while to find the right fit, and that rejection is a normal part of any job search. Psychologically preparing yourself can help you persevere until the right job comes along.
- Don’t be a square peg. If a flexible part-time schedule is what matters most, you may need to be flexible yourself in other areas. For example, accept that you may need to compromise on title, salary, or industry. Giving up the highest-paying job for one with a more relaxed schedule can be worth it.
- Go remote. Work-from-home jobs with flexible schedules can often be easier to find than on-site jobs that have flexible schedules. When reviewing online job boards, look for flexible schedule remote jobs.
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It can be difficult to find flexible-schedule part-time jobs because many jobs require being in a certain location at a certain time. For example, a hairstylist has to show up for work when they have appointments scheduled. A restaurant has to know they have enough servers on hand during operating hours. Even a corporate job where some work can be done remotely and independently can require being online during set times so that it’s easy to communicate with coworkers.
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Perhaps someone wants to take on a second job to help them pay down their debt or save for a dream vacation. Whatever the reason, it’s easy to see the appeal of a part-time job with a flexible schedule.
While there are countless part-time jobs on the market that can suit a variety of workers’ desired schedules, these are some of the best flexible schedule jobs for Gen Zers and Millennials. And if you’re in college, don’t miss our list of the best on-campus jobs.
1. Landscaper and Groundskeeper
Average hourly wage: $17.39
Job description: Landscapers and groundskeepers typically set their own schedules and plan which days they’ll tend to a client’s yard, but they don’t have to tell them exactly what hour they’ll show up to do their work.
Requirements: In some areas a license may be required to use pesticides and fertilizers.
Schedule flexibility: 4
Duties:
- Mowing lawns
- Removing weeds
- Planting and maintaining flowers, bushes, and trees
SerhiiKrot/istockphoto
Average hourly wage: $22
Job description: Running a fitness or recreation class can be fun and rewarding work that is often performed on a part-time basis. Many instructors can choose when they host their classes (like when their young child is in school), but they do have to stick to those times.
Requirements: Licensing or background checks may be required.
Schedule flexibility: 4
Duties:
- Plan programming
- Run classes
- Clean up post-class
kazuma seki/istockphoto
Average hourly wage: $37
Job description: Many businesses hire freelance software developers to create computer programs and applications for business or consumer use. Some meetings during business hours may be required.
Requirements: Knowledge of select programming languages.
Schedule flexibility: 4
Duties:
- Write code
- Test code
- Meet with project stakeholders
(Learn more: Home Affordability Calculator)
monkeybusinessimages/istockphoto
Average hourly wage: $34
Job description: Plenty of professionals can’t afford or don’t need a full-time assistant. Instead, they hire virtual assistants who can tackle administrative work for a few hours a week. Virtual assistance can be a rewarding job for introverts who are conscientious and organized.
Requirements: Office skills
Schedule flexibility: 4
Duties:
• Scheduling meetings
• Managing clients’ inbox
• Helping with administrative work
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Average hourly wage: $28
Job description: A writer can work with many different brands as a freelance copywriter and can choose when they want to take on new projects and what hours of the week they work on them. Working as a freelance copywriter is also a great side hustle.
Requirements: Bachelor’s degree and industry experience
Schedule flexibility: 5
Duties:
- Research
- Writing copy
- Editing copy
Tempura/istockphoto
Average hourly wage: $35
Job description: Freelance web designers work independently designing websites for a variety of clients, instead of a full-time job. Work-from-home web design can be a well-paying and fulfilling job for antisocial people.
Requirements: Knowledge of design programs, and HTML and CSS programing languages.
Schedule flexibility: 3
Duties:
- Design web pages and sites
- Code designs
- Present to clients and incorporate feedback
Tatiana Buzmakova/istockphoto
Average hourly wage: $31
Job description: Similar to copywriters, editors can work freelance for multiple clients.
Requirements: Bachelor’s degree and industry experience
Schedule flexibility: 4
Duties:
- Nurturing writers
- Editing copy
- Publishing content
(Learn more at: Personal Loan Calculator)
kupicoo/istockphoto
Average hourly wage: $37
Job description: A business consultant can offer services to multiple businesses who need support as a whole or who are looking to improve a certain area of their business, such as their marketing efforts, operations, or HR.
Requirements: Bachelor’s degree, master’s degree (more advantageous), or a certification from a business consultant association.
Schedule flexibility: 3
Duties:
- Assess potential areas of improvement
- Create improvement plans
- Find ways to cut costs
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There are plenty of great flexible-schedule jobs that millennials and Gen Zers can pursue to give them the time they need to attend school, start a business, or take care of young children. Some remote freelance roles can be entirely flexible — such as web designers, writers and editors — while other jobs require your presence during certain core hours.
Choose whether you prefer a more physically demanding job — such as landscaper or fitness worker — or an office job that requires a laptop (like virtual assistant). It may take time to find the right position, so be patient. It’s also a good idea to keep an eye on how your money comes and goes to ensure you’re sticking to your savings goals.
Take control of your finances with the SoFi Insights money tracker app. Connect all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Featured Image Credit: Ivan Pantic/istockphoto.
