Virginia will not tax canceled student loans as income under a new plan announced by President Joe Biden last week, according to representatives from two state agencies.
“The amount of student loan debt that has been forgiven will be excluded from adjusted federal gross income and, by extension, Virginia taxable income, without further action by the General Assembly,” wrote Stephen Kindermann, finance attorney for Virginia Division. of Legislative Services, in response to a request from Del. Marcus Simon, D-Fairfax.
Heather Cooper, a spokesperson for the Virginia Department of Taxation, also said in an email that “to the extent student loans canceled under the recently announced student loan forgiveness program are exempt from federal tax… they would not be taxable on the Virginia tax return. .”
Several national the news listed Virginia as one of about twelve states where residents whose student loans or parts of them were canceled under the new policy could still be subject to state taxation of the canceled loans.
But Virginia in 2022 conformed part of its tax code to a provision of the American Rescue Plan Act that excluded student loans that were forgiven from taxation as gross income through 2025.
Simon said the confusion was likely related to Virginia’s decision not to conform its state tax code to all aspects of the federal tax code.
However, he said not only did the state follow the federal government on the loan forgiveness exemption, but tax impact estimates accounted for the resulting loss of state revenue.
Under the policy announced by Biden on Wednesdayup to $20,000 of federal student loan debt will be forgiven for Pell Grant borrowers, and up to $10,000 will be forgiven for all other borrowers with incomes below $125,000 for an individual and 250,000 $ for a household.
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