Californians who receive federally forgiven student loans would not have to pay state taxes on the amount forgiven under President Joseph Biden's program, the governor said. Gavin Newsom.
This Saturday, the state official called on the Legislature to take early action to ensure that any federal student debt relief provided to Californians is not subject to state taxes. The proposal will be part of the Governor's budget to be released in January.
“Californians who get student debt relief shouldn't be taxed on it. This will provide up to $1.3 billion in tax relief for more than 3.5 million Californians,” Newsom said. "I look forward to working closely with the legislature to achieve this through early action."
California has nearly 3,550,000 eligible borrowers, of whom approximately 2,340,600 are Pell Grant borrowers.
According to the state, estimates have shown that the state tax exemption on forgiven student loan debt will provide Californians with relief of up to $1.3 billion.
Individual borrowers will save on average hundreds of dollars in state taxes and could even save as much as $1,860, the Office of Governor Gavin Newsom said in a statement.
Under President Biden's proposal, the federal government will forgive up to $10,000 in student loans for people who earn less than $125,000 per year and up to $20,000 for Pell Grant recipients, intended for students with the greatest financial need.
President Biden's America's Bailout Plan exempts student loan debt forgiveness from federal income taxes from 2021 to 2025.
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