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North Carolina Gov. urges General Assembly to waive income tax on student loan forgiveness

CHARLOTTE — People in North Carolina who are getting federal student loan forgiveness might not actually have to pay state income taxes.

That’s if Gov. Roy Cooper gets his way.

The governor issued a statement Wednesday urging Republicans in the state General Assembly to take action and waive state income taxes on student loans that have been forgiven.

In August, the White House announced a plan to eliminate $10,000 of federal student loan debt for borrowers under certain income limits, with an additional $10,000 of forgiveness for certain eligible borrowers. Applications for loan forgiveness are expected to open in early October, and many borrowers will get their student loan reductions automatically.

Channel 9 reported that North Carolina is one of only a few states currently set to tax student loan forgiveness. That’s because the state legislature didn’t adopt an updated federal revenue code that would exclude student loan forgiveness from state income taxes.

In Wednesday’s statement, Gov. Cooper compared his request for a waiver to the General Assembly’s legislation that made it so North Carolinians didn’t have to pay income tax on forgiven Paycheck Protection Program loans. The governor’s office pointed out that some state legislators also benefitted from PPP loan forgiveness.

“Legislative leaders need to find a solution that treats student loan forgiveness the same way they handled the PPP loan forgiveness that many of them received,” Gov. Cooper said in a statement. “Republican legislators were quick to help businesses and should now fix this fundamental unfairness for many hardworking people who will get hit hard by this.”

Earlier this week, Republican governors from nearly two dozen states wrote a letter urging the Biden Administration to withdraw the student loan forgiveness plan.

Without action from the General Assembly and at North Carolina’s current tax rate, borrowers will have to pay about $500 in taxes if they received $10,000 in forgiveness.

South Carolina won’t tax the relief as income, the South Carolina Department of Revenue said in a tweet on Sept. 1.

“To the extent a student loan described in IRC Section 108(f)(5) is forgiven for federal Income Tax purposes and excluded from federal taxable income, then the amount is also excluded from South Carolina taxable income,” the SCDOR said.

Borrowers have until the end of 2023 to file an application for federal student loan forgiveness, according to the White House.

According to the White House, student loan forgiveness won’t be subject to federal income tax.

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