Wisconsinites could pay state taxes on student debt forgiveness
WISCONSIN (CBS 58) -- The $10,000-$20,000 of student debt relief announced by the Biden administration may come with a caveat in six different states, according to some tax policy experts. Wisconsin could be one of those states.
The American Rescue Plan Act made it so people wouldn't pay federal income taxes on the debt forgiveness, but one tax code expert says if Wisconsin legislators don't move fast, it could mean borrowers will be paying an unexpected chunk of change to the state.
"It's important to understand that Wisconsin lawmakers didn't wake up and say we want to treat this differently. We wanted to tax student loan debt forgiveness. In fact, that's the default position," said Jared Walczak, vice president of state projects at the non-partisan think tank The Tax Foundation.
Initially, Walczak listed 13 states with tax codes that could make borrowers liable, then some states put out plans to avoid that from happening.
Wisconsin is one of six states including Arkansas, Massachusetts, Minnesota, Mississippi, and North Carolina that still hasn't said anything.
The Wisconsin tax code's conformity date is from December of 2020.
"Unless state lawmakers came back and updated that conformity date, or otherwise amended the code to change this provision, then Wisconsin will tax student loan debt forgiveness," said Walczak.
Something he says could be difficult for many borrowers who weren't expecting to pay up to $1,100 of state taxes.
"Sure, it's a big deal to have $10,000 worth of debt forgiven," said Walczak. "It doesn't mean there's $10,000 more in your bank account right now that you're paying taxes on."
Walczak says legislators would need to move fast in January or February to avoid confusion.
"Are you going to issue refunds? Are people going to have to file amended returns?," asked Walczak. "So, it has to happen pretty quickly."
We reached out to majority leadership in the state Senate and House on what their plans are for this. They have not yet responded.