by Brian Balfour
Senior Vice President of Research, John Locke Foundation
As reported by WSOC-TV, North Carolina’s Department of Revenue announced this week that the state will consider federal funds received as student loan “forgiveness” as taxable income:
“The North Carolina Department of Revenue said Wednesday that the state considers student loan forgiveness as taxable income. That means you could be paying hundreds of dollars or have your tax refund reduced by hundreds after you file your taxes.”
Also important to note here that in addition to lowering and flattening rates, the North Carolina General Assembly has increased the standard deduction for taxes over the past several years. The state’s income tax structure was changed in 2013 from a progressive system topping out at 7.75% to a flat rate of 5.8%. The rate has since been further reduced to the current 5.25%, and the FY 2021-22 budget scheduled the rate to fall to 3.99% after 2026.
Also in 2013, the standard deduction was increased from $6,000 to $15,000 for married filers. The deduction has likewise been increased in subsequent years, with last year’s budget increasing it to $25,500 for married filers. The result is more low-income households paying no state income taxes.
For those receiving student loan “forgiveness” who are upset about the news that it will be subject to state tax, you can be thankful that the tax burden will be less than it would be without the last decade of tax reforms.