Finally Congress will be left of student loan borrowers who tax disabled and Bereaved parents, in?
It is a little-known fact that a forgiven student loan is generally considered as income for tax purposes. While some types of student loan cancellations (eg Public Service Loan Forgiveness, closed school, etc.) are exempt from paying taxes, forgiveness of debt due to disability and death is not exempt. There are no exceptions to the taxes that can be applied-such as insolvency, when the borrower's debts exceed their assets, but that can be very complicated.
Last month, borrowers who had their student loans forgiven due to their disability or the death of a child (for whom the loan had been carried out) received from IRS 1099-C in the mail. Many learned then, for the first time, that canceled student loans could be treated as taxable income. As a result, they can obtain a surprise tax bill for the amounts of the forgiven loans. For these borrowers, many of whom are older or veterans with service-related disabilities, receiving the 1099-C is like salt in the wound. Could this terrible practice finally be coming to an end?
Today, Senators Coons (D-DE), King (I ME), and Portman (R-OH) reintroduced the Stop Disability Law that taxed Death and. This bipartisan bill will exempt federal and private student loans that are canceled due to the death of the student or the total and permanent disability of the borrower from the income tax. It is expected that a similar bill in the House. This project was originally presented last year with strong bipartisan and bicameral support. The Senate bill (S. 2800) had 17 co-sponsors-a mixes of Democrats and Republicans. repetitions Roskam (R-IL-6) and Ron Kind (D-WI-3ª) led the parallel House bill, which was unanimously approved by the media committee.
NCLC has been arguing for years that taxing these discharges is grossly unfair to some of the most vulnerable student loan borrowers. In order to qualify for a disability discharge, borrowers must be able to demonstrate that they are no longer able to participate in "substantial and lucrative work." In other words, they must show that their disability prevents them from being able to support themselves financially. Yet, despite showing this, and despite the government's decision that it makes sense to provide these borrowers with financial relief, under current law the IRS can impose a potentially devastating tax burden on these borrowers.
PLUS loan borrowers for parents are also eligible for a death discharge if the student for whom the PLUS loan was taken has died. Again, current tax provisions mean that parents are shaken by the death of their child could also face a huge, unexpected contribution receipt at a time. The proposed bill addresses that injustice and provides real financial relief to borrowers with disabilities and afflicted parents.
For now, borrowers who receive a 1099-C must be sure to ask for the competent tax advice. Unfortunately, tax preparation resources are unfortunately lacking in these low-income borrowers. The IRS has indicated that the cancellation of debt issues for student loan debt are beyond the scope of interventions Voluntary Income Tax (VITAE) programs. In some circumstances, however, low-income borrowers may be able to seek help from Low-Income Tax Clinics.
Have you recently obtained a 1099-C after your student loans were forgiven due to the student's death or disability? Tell us your story
