The state of New Jersey will not tax the savings which will be realized by the hundreds of thousands of people in New Jersey who will likely see up to $20,000 of their student loans forgiven, the New Jersey Treasury Department tells TLS.
“Cancellation of debt is not taxed in New Jersey because it is not a category of income under the Gross Income Tax Act, Treasury spokeswoman Danielle Currie told TLS.
“Therefore, income from the discharge of any business or personal indebtedness is not taxable for New Jersey Gross Income Tax purposes,” she added.
At least a dozen states, including New York, may potentially tax the cancelled debt.
On the federal level, the money will not be taxed either, thanks to a provision in the American Rescue Plan Act, sponsored by New Jersey Senator Bob Menendez, which says the forgiveness of student loan debt between 2021 and 2026 does not count toward federal taxable income.
Menendez was a big advocate for student debt forgiveness, and was publicly pushing President Biden to forgive up to $50,000 per student.