LOS ANGELES — Gov. Gavin Newsom on Saturday called on the California Legislature to act quickly to prevent student loan borrowers from having to pay state income taxes on up to $20,000 in federal debt forgiveness.
The Biden administration announced in August a sweeping, one-time loan forgiveness program that would wipe out thousands of dollars in federal direct loan debt. Borrowers who meet the program's income limits — less than $125,000 for an individual or $250,000 for a couple — will have up to $10,000 in debt forgiven, or up to $20,000 if they received a federal Pell Grant.
Tax authorities treat forgiven debt in many cases as income. Under federal law, the amounts forgiven through the Biden initiative will be ignored by the Internal Revenue Service. But under current state law, analysts say, they will be treated as taxable income in California.
