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Indiana set to tax student loan debt forgiven by Biden order

INDIANAPOLIS (WISH) — A state lawmaker on Tuesday said he’s drafting legislation to keep student loan borrowers from paying hundreds in extra taxes.

The Indiana Department of Revenue says student loan debt forgiven by President Joe Biden’s order in August is subject to state income tax due to the way the state tax code interfaces with the federal code. The American Rescue Plan of 2021, part of the federal coronavirus relief, included a change to the federal tax code that excluded student loan discharge under certain conditions from federal gross income. The Indiana General Assembly passed a law in the spring that required anyone with loans forgiven under the plan to declare them as part of their state gross income.

Biden’s plan forgives up to $10,000 in federal student loans. If someone takes the full $10,000, the Indiana Department of Revenue officials say the loan recipient would pay an additional $323 in state income tax. There is also a county income tax, which varies.

A Marion County resident claiming the full $10,000 would pay $202 on top of the state income tax for a total of $525.

Pell Grant recipients can get up to $20,000 forgiven. If that happens, Department of Revenue officials said total state tax payments for a Marion County resident could reach $1,050.

Rep. Greg Porter, a Democrat from Indianapolis, said he has already gotten calls from constituents worried about their tax liability. He said he is drafting legislation to exempt forgiven student debt from state income tax. Porter is the ranking minority member of the House Ways and Means Committee.

“Why would we do that to individuals that we want to attract?” he said. “We want to attract young people to our state but we continue to have legislation which is prescriptive and is punitive toward young people.”

News 8 contacted the offices of the committee vice chair Rep. Robert Cherry, a Republican from Greenfield, and the Higher Education Subcommittee chair Rep. Robert Heaton, a Republican from Terre Haute, for their opinions of Porter’s proposal. Neither responded before deadline.