The New Jersey Society of Certified Public Accountants is reminding New Jersey taxpayers that the new student loan relief plan signed into law last week will not incur federal income tax or New Jersey state income tax.
While some states consider student loan debt forgiveness taxable income, it is not taxable in New Jersey.
According to the New Jersey Division of Taxation, the cancellation of debt is not a category of income under the Gross Income Tax Act. Therefore, income from the discharge of any business or personal indebtedness is not taxable for New Jersey gross income tax purposes.
On the federal level, the American Rescue Plan of 2021 made student loan forgiveness tax-free through 2025 — and the law covers this most recent forgiveness, too, according to a fact sheet from the White House.
NJCPA head Ralph Thomas said this is great news for New Jersey residents.
“This is a commendable plan to assist those just starting out in their careers who may have considerably high amounts of debt or those who have been out of college a few years and are still struggling with repayment,” he said. “In recognition of the debt burdens of our own members, the NJCPA created a Student Loan Debt task force and initiated a Student Loan Debt Lottery,” he added.
The typical New Jersey undergraduate student has about $35,000 in debt, collectively bringing New Jerseyans’ total student loan debt burden to $42.5 billion, according to the latest data from Education Data Initiative.