WI Student Loan Borrowers Can Expect New Taxes Unless Legislature Acts

WISCONSIN — Wisconsinites who took out federal student loans to attend college may have to pay an additional state tax if their debt is forgiven under President Joe Biden's plan.

Wisconsin's tax codes, like several other states including Minnesota, are out of line with federal tax codes which do not tax loan forgiveness. Tax Foundation, a think tank out of Washington, D.C., was among the first to point out the discrepancy that could leave Wisconsin borrowers unexpectedly spending more at tax time next spring.

What borrowers can expect comes down to whether the Wisconsin legislature decides to update the state's tax code.

"When changes are made to the Internal Revenue Code, we ask the legislature to adopt those changes; it's advantageous to be in harmony with the IRS," said Wisconsin Department of Revenue Communications Director Patty Mayers in a statement to Patch.

"Excluding debt forgiveness from being taxed, in this instance, requires a statutory change and action on the part of the legislature," Mayers said. "It cannot be done administratively by the department. We will certainly address this discrepancy with federal law in our upcoming biennial budget request in an effort to ensure Wisconsin taxpayers don’t face penalties and increased taxes for having their loans forgiven."

Wisconsin last updated its code on Dec. 31, 2020, according to Tax Foundation. Just months later, Congress passed the American Rescue Plan Act which then exempted student loan forgiveness from federal taxes, according to The Milwaukee Journal Sentinel.

Thousands of Wisconsinites stand to benefit from student loan forgiveness, which was announced by Biden on Aug. 24. Single people making under $125,000 per year can expect $10,000 of their debt to melt away, while those who received Pell Grants can expect $20,000 in forgiveness. For married people, the income limit is $250,000.

People with student loan debt make up about 12 percent of the state's population with the average borrower owing about $31,000, according to the Education Data Initiative.

The possibility of a state tax on debt forgiveness comes as Wisconsin posts a surplus that was at $3.8 billion in January. The possibility also comes just months ahead of a heated election to decide the state's next governor and U.S. Senator.

RELATED: Biden Announces Student Loan Debt Relief: What It Means For Wisconsin