PHILADELPHIA (KYW Newsradio) — Pennsylvania is changing a policy that taxes student loan forgiveness as income.
There are programs in the commonwealth that forgive student debt for certain careers, like nursing, or for nonprofits.
Although student loan forgiveness is not considered taxable income at the federal level, it has been in Pennsylvania and Missouri. Meaning, when someone qualifies for one of those programs — like Gina Datillo from Chester County, who’s worked full time at a nonprofit for 12 years — they get a surprise tax bill.
“This April, I was due to pay state and local taxes at a rate of almost three times my salary,” she said.
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“The problem is the student loans are typically forgiven in one lump sum,” explained Gov. Tom Wolf. “Now, if that’s considered to be taxable income with loan forgiveness — often is — the borrower could be on the hook for a major tax bill that year.”
At the urging of Chester and Montgomery counties’ state Sen. Katie Muth and Allegheny County’s Lindsey Williams, Wolf said his administration is changing the Department of Revenue policy to make sure student loan forgiveness is not taxable.
“It's a huge step in the right direction,” said Muth, “in eliminating this financial burden, access to education.”
Wolf said his administration can’t control what is done at the local level, but he hopes they would follow state and federal governments.
