Death and taxes are two of life certainties. For some cosigners and families, this includes a tax after the death of a student borrower. A group of senators to reintroduced legislation to eliminate the tax hit to families of student loan borrowers who die or become disabled.
In Washington, D.C. on February 16th, Maine Senator Angus King (I), Senator Rob Portman (R-OH), and Democratic Senator Chris Coons of Delaware joined together to introduce the Stop Taxing Death and Disability Act. The trio attempted to get it pushed through Congress the previous year without success. They are gearing up for another try this year.
Last year, the politicians complained about the Internal Revenue Service practice of instituting an income tax on canceled debt after death. This tax often results in the student loan borrower’s family being on the hook for thousands of dollars in taxes. The Stop Taxing Death and Disability Act would get rid of what the politicians call an unfair tax.
King, Portman, and Coons also argue that the tax is key road block for the Department of Education to improve upon the loan forgiveness process. Currently, the Department of Education requires an application for loan forgiveness, but if the tax was eliminated, the loans could be forgiven and discharged without the need for an application.
Senator King was prompted to take action in 2016 after a couple from Topsham, Maine reached out to him with grievances. Their son died unexpectedly from a brain aneurysm five years beforehand. Their child’s loans were forgiven, but the IRS sent a notice for an income tax $24,500 on the forgiven loans. A state tax from Maine tacked on another $6,300. The family had to tap their 401 (K) to cover the tax bill. The couple contended the IRS is profiting from their son’s death while inciting undue hardship.
On the reintroduction, Senator King proclaimed, “For the federal government to hit a family who just lost their child, or a person who just became disabled, with a surprise tax on a forgiven loan is not only appalling – it’s plain wrong,”
Senator Chris Coons added, “Taxing Americans who are grieving the death of a child or adjusting to a life-changing disability is simply unconscionable.”
“Families like the Carducci family of Steubenville, Ohio, who have a child who has become permanently and totally disabled are going through unimaginable grief,” Portman said. “Because of this tragic disability, they cannot afford a massive student loan bill.”
Author: Donna Fuscaldo
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