WHAT IF YOU CAN’T AFFORD YOUR TAX BILL? If you’re on an income-driven plan, you may not have money to set aside for a potential loan forgiveness tax bomb — let alone things you actually want to save for, like buying a home or retiring. Payment plans are available if you can’t afford your tax bill. IRS payment plans charge fees and interest, and rates can change every three months. As of the first quarter of 2020, the interest rate was 5%. In some cases, if the IRS regards you as insolvent — or having liabilities that exceed your assets — you may be able to exclude some or all of the forgiven amount from your income. Talk to a tax professional after your loan is forgiven to understand whether this is an option for you.
The article Should You Worry About a ‘Student Loan Forgiveness Tax Bomb’? originally appeared on NerdWallet.
RYAN LANE is a NerdWallet authority on student loans. He has worked in the student loan industry for more than a decade.
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