Do I Have To Pay Income Taxes On Discharged Student Loans?
Do I have to pay income taxes on discharged student loans? This is one question that many students always fumble with. There is so much information about it but nothing seems to be very concrete. This is because sometimes even the people writing about it know very little on the same. As such, their writing is always full of inconsistencies. There are other writers however who do not fully understand how everything works and therefore cannot give one the proper information. As a reader, it is important that you take everything you read with a pinch of salt.
The correct answer to the question Do I have to pay income taxes on discharged student loans? is both yes and no. The fact of the matter is the taxability of the discharged loans depends on the grounds on which the loans were discharged. This is a very important point since many people who miss it either say that all discharged loans are taxable or they are not. The important thing for one to note is that a discharged loan may be taxed or not depending on the reasons why it was discharged in the first place.
The Federal Government has its own categories of people whose discharged loans are taxable and those whose discharged loans are not taxable. Therefore, before saying yes or no to the question Do I have to pay income taxes on discharged student loans? it is important to ensure that you know which category you fall into first. For people in job fields such as military service and teaching, or for those with loans from selected law schools or National Health Service Corps loans, they are not required to pay income taxes on student loans that have been discharged.
Other people who are not required to pay income tax on their discharged student loans are bankruptcy and insolvency. It is important for one to however show that at the time of the cancellation of the loan, they were bankrupt or that they were insolvent. If one manages to do this, then they may not be required to pay income tax on their forgiven or discharged student loans. It is however not easy for one to get away with this and those who intend to fake their bankruptcy or insolvent state should note that once they are caught, the penalties would be higher. However for those people who are genuine, they have nothing to worry about. They can boldly answer no to the question, Do I have to pay income taxes on discharged student loans?
The other set of individuals who do not fall into the above category have to pay income tax on their discharged student loans. Therefore, if your student loan is discharged because your school has been closed, or because it was not properly certified, or because or death or disability, and many other such reasons, the Federal Government considers the loan to be an income and one has to pay taxes on it. Therefore the answer to the question Do I have to pay income taxes on discharged student loans? is in the affirmative for the above grounds.