IRS tax debt relief and forgiveness (2024)

What the program means for you, and what comes next

President Biden, Vice President Harris, and the U.S. Department of Education have announced a three-part plan to help working and middle-class federal student loan borrowers transition back to regular payment as pandemic-related support expires. This plan includes loan forgiveness of up to $20,000. Many borrowers and families may be asking themselves “what do I have to do to claim this relief?” This page is a resource to answer those questions and more. To receive notifications about the process, sign up at theDepartment of Education subscription page. You’ll have until Dec. 31, 2023 to apply.

The Biden Administration’s Student Loan Debt Relief Plan

Part 1. Final extension of the student loan repayment pause

Due to the economic challenges created by the pandemic, the Biden-Harris Administration has extended the student loan repayment pause a number of times. Because of this, no one with a federally held loan has had to pay a single dollar in loan payments since President Biden took office.

The Biden-Harris Administration’s one-time student debt relief plan is necessary to address the financial harms of the pandemic, provide borrowers with a smooth transition back to repayment, and help borrowers at highest risk of delinquency or default once payments resume.

Congress recently passed a law preventing further extensions of the payment pause. Student loan interest will resume starting on Sept. 1, 2023, and payments will be due starting in October. We will notify borrowers well before payments restart.

Frequently Asked Questions

Do I need to do anything to extend my student loan pause?

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PresidentBiden Announces Student Loan Relief for Borrowers Who Need ItMost

A three-part plan delivers on President Biden’s promise to cancel $10,000 of student debt for low- to middle-income borrowers

President Biden believes that a post-high school education should be a ticket to a middle-class life, but for too many, the cost of borrowing for college is a lifelong burden that deprives them of that opportunity. During the campaign, he promised to provide student debt relief. Today, the Biden Administration is following through on that promise and providing families breathing room as they prepare to start re-paying loans after the economic crisis brought on by the pandemic.

Since 1980, the total cost of both four-year public and four-year private college hasnearly tripled, even after accounting for inflation. Federal support has not kept up: Pell Grants once coverednearly 80 percentof the cost of a four-year public college degree for students from working families, but now only cover a third. That has left many students from low- and middle-income families with no choice but to borrow if they want to get a degree. According to a Department of Education analysis, the typical undergraduate student with loans now graduates with nearly $25,000 in debt.

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President Biden’sannouncementon August 24 that many individuals with student loan debt would see up to either $20,000 (Pell Grant recipients) or $10,000 (others) forgiven has unsurprisingly received a lot of attention. To qualify, borrowers must have income under $250,000 if MFJ or HH or under $125,000 for all others. The announcement did not say what this measure of income is (AGI, modified AGI, something else) and for what year. The White House estimates that this income level is about 95% of individuals.

First – what is the tax effect? The American Rescue Plan Act (P.L. 117-58, 3/11/21) modifiedCode §108(f)to provide that for 2021 through 2025, gross income excludes income from cancellation of higher education student loans. So, for federal purposes, assuming these cancellations of up to $20K or $10K of student loans occurs in 2022 through 2025, no federal income tax is owed.

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Ervin v. Commissioner, T.C. Memo. 2021-75 | June 23, 2021 | Lauber, J. | Dkt. No. 485-15

• Opinion

Short Summary:

For nearly a decade, the taxpayer and his wife failed to file Federal income tax returns and made no payments. The couple were indicted and convicted for tax evasion for a three-year period of the near-decade non-payment. The following year, the taxpayer was ordered to pay restitution for the entire period of non-filing and non-payment.

After remanded to custody, the IRS completed a civil examination for the taxpayer’s individual income tax liabilities for a six-year period, which included years subject to the criminal court’s order for restitution. IRS prepared and certified a substitute for return for the relevant years. IRS, then, sent taxpayer two notices of deficiency for two three-year periods, providing for penalties.

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The IRS released on April 30th Notice 2020-32 wherein the IRS interprets general tax law principles to deny business deductions (under Internal Revenue Code Section 162) for the wage and related expenses when the business takes advantage of the SBA’s PPP loan forgiveness.

The IRS Notice is a wrong interpretation of how CARES Section 1106 (see below) and by implication, Internal Revenue Code Section 108 (discharge of indebtedness), works, as well as how Congress intends CARES to work. Congress clearly intends CARES’ SBA loan proceeds to ameliorate Covid-19s damage to small business’ earnings (and thus mitigate the Covid-19 economic recession) by pushing cash flow into, and through, small business.
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Getting married means that you will share your life with your spouse in a lot of ways including your finances. With that being said, it is not uncommon to find spouses that did not talk about their finances before saying ‘I do’. This may bring about some unprecedented problems such as finding out that your partner owes back taxes. In most cases, you will still be liable for these back taxes too even if they were incurred before your marriage and you currently file joint returns. While this may seem unfair, the IRS has instituted a couple of options and tax reliefs to help spouses deal with their partner’s tax reliefs. Here are some of the options and tax reliefs that you can claim if your partner owes the IRS back taxes. But first.

Do You Know Where The Tax Debt Is Coming From?

Tax arrears and debt are not romantic things that spouses want to discuss, especially before marriage. However, it is imperative for marriage partners to understand each other’s financial situation. Is the debt from late child support payments? Is your spouse late in making student debt payment? Regardless of the reason or whether you are responsible for your spouse’s debt, the IRS views the joint return as a fair game. This means that once each of you signs a joint return, you are both responsible for any tax, interest or even penalty incurred by the other spouse. What can you do when you realize that your spouse owes the IRS when you file joint tax returns?

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If you find yourself unable to make the minimum monthly installment payment, you can negotiate a monthly payment amount that fits your budget by completing Form 433-F and working with the IRS employee assigned to your case. However, you’ll need to show that your financial situation justifies a payment below the typical IRS standards.

Installment Agreement Requests

The IRS prefers taxpayers to pay a certain amount towards their tax debt each month. The minimum payment amount is generally calculated by diving your balance by 72.

If you can afford to pay this amount, you may qualify for a streamlined installment agreement request, and you may not have to complete a Collection Information Statement.

If you can’t pay this much each month, you can still get anIRS installment agreement. By completing the Collection Information Statement, you can show the IRS why you’ll need a lower monthly payment amount to keep up with your other expenses.

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The purpose of the borrower defense regulation is to protect student loan borrowers from misleading, deceitful, and predatory practices of, and failures to fulfill contractual promises by, institutions participating in the Department’s student aid programs.

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More than 50 tax provisions that Congress routinely extends on a yearly basis expired at the end of 2014. The big problem is each year they are extending the provisions later and later in the year creating uncertainty for taxpayers on whether they can depend on these tax incentives or not. This makes tax planning unclear and leaves taxpayers wondering about their projected tax liability.

For 2014, Congress waited almost to the end of the year to apply many of the provisions to the 2014 tax year. This was not only a problem for taxpayers but also for the IRS, which needed to adjust its forms and tax filing software at the last minute and actually had to delay the start of the tax season. Read More

The complexity of completing one’s federal and state income tax returns is not necessarily tied to one’s income level. One of the more complex federal tax rules is the Earned Income Tax Credit (EITC) for low-income workers. Could the individual income tax be simpler? Yes. Here are some ideas.

• Make all income you received subject to tax. What is income? Let’s say it is anything that increases your wealth. So, it would be any payment from the government, debt forgiveness, gross wages, employer-provided health insurance, scholarships, gains from selling assets, etc. What would not be income? Borrowing money (it does not increase your wealth because you have an offsetting liability). Receipt of expense reimbursem*nts from your employer (it makes you whole for what you, in essence loaned to your employer Read More

The Franchise Tax Board (FTB) announced it is now accepting 2013 state tax returns. Also, the FTB provides the following updates on law changes and filing services brought to you in this blog series – Part II.

2013 Short Sellers Get State Tax Relief – According to an IRS Information Letter dated September 19, 2013, the IRS has determined that California taxpayers who sell their principal residences where the lender agrees to a short sale for less than what is owed on the home are relieved of incurring cancellation of indebtedness income, which may have been taxable. Instead, the amount of cancelled debt is included in the amount realized in determining gain on the sale of that residence. Read More