Federal Income Tax Treatment


Section 61(a)(12) of the interior Revenue Code of 1986 (IRC) specifies that gross income includes income from the discharge of indebtedness of $600 or more in any civil year . However, IRC Section 108(f) specifies conditions under which student loan forgiveness is excluded from income. Specifically, IRC section 108(f)(1) states that

In the case of a private , gross income doesn’t include any amount which (but for this subsection) would be includible in gross income by reason of the discharge (in whole or in part) of any student loan if such discharge was pursuant to a provision of such loan under which all or a part of the indebtedness of the individual would be discharged if the individual worked for a particular period of your time in certain professions for any of a broad class of employers.

A “student loan” is defined in IRC section 108(f)(2) as including any loan provided to assist a private attend an academic institution. The loan must are made by the us or a US agency, a government (including US territories and possessions and therefore the District of Columbia) or any political subdivision of a government , or a 501(c)(3) charitable organization that controls a public hospital.

Loans made by educational institutions also fall within the definition of a student loan, as long as either the funds came from one among the opposite three sources or the loan was made under a repayment assistance program of the tutorial institution that’s designed to encourage the institution’s students to serve in occupations or areas with unmet needs. The service must be for or under the direction of a governmental unit or tax exempt 501(c)(3) charitable organization. the scholar must not be used by or providing service to the tutorial institution that’s discharging the scholar loan. Forgiveness of refinanced student loans also are eligible for tax free treatment under certain circumstances.

For many, there are no other options to finance tertiary education than to get student loans. Whether this money can be considered an income or not depends largely on rules set by the IRS. Typically, the IRS is bent on everyone playing it fair with their taxes. They take particular interest in taxes on wages, salaries, dividends, commissions, tips, and interests. Other forms of residual income such as side hustles and hobbies.

If this list seems extensive, it shouldn’t worry you because it also comes with a silver lining. That’s because the taxes you need to pay to depend on the deduction you make of your credits and tax exemptions from your gross or overall income.

In this case, you need to know that those financing their education with different types of packages might have to pay taxes. Because the IRS also considers some of these programs as income even if they get forgiven. Hence, this page is dedicated to helping students understand how student loan forgiveness and taxable income relate.

Therefore, if you have received or plan to take funding from external sources to finance your education, you will have to pay attention to the following:

Tuition Assistance From Employer
If you’re lucky, your employer might have some programs in place to help cover the cost of professional advancement and education. Also, there are loan repayment packages that might be in place to help attract the best candidates. Hence, if you find yourself working with any such employer, you can cover the cost of loan repayment or education for career advancement purposes.


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