Question about taxable student loans

[funtertaining15]

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May be a dumb question, but how do taxes work after you pay off your loans - what amount specifically is taxable that is considered as income, the amount you paid that past year? thanks!

 

[Sushirolls]

LOL. Basically all of it.

You only get tax deduction from the interest you paid. And that is only 2.5k, and only, only if you happen to be making 90K or less [adjusted gross income] [or 185K joint filing]. Which most post residency people won't even qualify for.

So in summary all of your post tax income dollars go to paying on interest & principal of student loans with no tax benefits. This isn't a home loan which the government allows the interest paid on home loans to deduct your Adjusted Gross Income.

Not fair? Taxes aren't fair. And anger shouldn't be directed at lack of a more enhanced credit or deduction for student loans, nay. It should be the original American values that led to the nations founders throwing tea in a harbor. We shouldn't be getting taxed on income in the first place. There shouldn't even be an IRS [*do a review of American IRS history]. We allow government to expand and never should have. But hey, at least we know those dollars are going to such a good cause like DEI, yum, can't have enough of that. Or telling us we can't have gas stoves, or that your water faucets need to flow slower. Or your toilet flushes with so little water you're always staring back at skid streaks.

But to the possible question you didn't ask, if your student student loans got paid off/written off by the gov for completing a 10 year IBR repayment plan... my understanding is the dollar amount they paid... the total X dollars, is considered 'income' and will inflate your gross income, possibly into higher tax brackets, too. Your new gross income will be taxed per routine. So your yearly taxes you expect to pay will be larger than normal, but still, it's better/less than paying the loans off completely yourself... That money is not considered to be a gift for tax purposes.

In summary, talk to your accountant, get a real answer. Thank the government for the privilege of the higher cost of living expense of needing an accountant in the first place.

 

[docksan]

With logic like that we shouldn't have medical specialties either and every doctor should just know everything.

 

[Geraltofrivia]

LOL. Basically all of it.

You only get tax deduction from the interest you paid. And that is only 2.5k, and only, only if you happen to be making 90K or less [adjusted gross income] [or 185K joint filing]. Which most post residency people won't even qualify for.

So in summary all of your post tax income dollars go to paying on interest & principal of student loans with no tax benefits. This isn't a home loan which the government allows the interest paid on home loans to deduct your Adjusted Gross Income.

Not fair? Taxes aren't fair. And anger shouldn't be directed at lack of a more enhanced credit or deduction for student loans, nay. It should be the original American values that led to the nations founders throwing tea in a harbor. We shouldn't be getting taxed on income in the first place. There shouldn't even be an IRS [*do a review of American IRS history]. We allow government to expand and never should have. But hey, at least we know those dollars are going to such a good cause like DEI, yum, can't have enough of that. Or telling us we can't have gas stoves, or that your water faucets need to flow slower. Or your toilet flushes with so little water you're always staring back at skid streaks.

But to the possible question you didn't ask, if your student student loans got paid off/written off by the gov for completing a 10 year IBR repayment plan... my understanding is the dollar amount they paid... the total X dollars, is considered 'income' and will inflate your gross income, possibly into higher tax brackets, too. Your new gross income will be taxed per routine. So your yearly taxes you expect to pay will be larger than normal, but still, it's better/less than paying the loans off completely yourself... That money is not considered to be a gift for tax purposes.

In summary, talk to your accountant, get a real answer. Thank the government for the privilege of the higher cost of living expense of needing an accountant in the first place.

Couldn't agree more. More people need to understand what actually happened in 1917 and how the Federal Reserve came to be.

 

[comp1]

Taxes are weighed heavily against earned income. The "simplification" of the tax code with the increased standard deduction just made this more so. Your $2.5k in interest isn't going to get you above that standard deduction, particularly when state and local taxes are capped at $10k deduction.

 

[Merovinge]

Taxes are weighed heavily against earned income. The "simplification" of the tax code with the increased standard deduction just made this more so. Your $2.5k in interest isn't going to get you above that standard deduction, particularly when state and local taxes are capped at $10k deduction.

Tax loopholes are the reason taxes are weighed so heavily against earned income (and to be clear they very much are). If we actually had a simple tax code that cut out 90% of deductions and was not avoidable by people with more money/means/corporations than the actual % needed to collect would be significantly lower. High earned income taxes are also a weapon older people use to shift the cost burden to younger individuals. The whole system is basically designed to punch W2 physicians in the face as hard as possible.

 

[sloop]

But to the possible question you didn't ask, if your student student loans got paid off/written off by the gov for completing a 10 year IBR repayment plan... my understanding is the dollar amount they paid... the total X dollars, is considered 'income' and will inflate your gross income, possibly into higher tax brackets, too. Your new gross income will be taxed per routine. So your yearly taxes you expect to pay will be larger than normal, but still, it's better/less than paying the loans off completely yourself... That money is not considered to be a gift for tax purposes.

I’m not sure what you’re referring to here with the “written off by the government” in ten years. You are correct that if you get the forgiveness that is inherent in PAYE/REPAYE/SAVE, etc. that is taxable income. Public Service Loan Forgiveness, however, is not taxable (at least it is not federally taxed, and only like four states will tax it).

 

[comp1]

Oh I see, the OP's question is really weirdly worded. I can't tell if they are talking about loan forgiveness or asking if money used for loan payments somehow doesn't count as earned income.

 

[Sushirolls]

I’m not sure what you’re referring to here with the “written off by the government” in ten years. You are correct that if you get the forgiveness that is inherent in PAYE/REPAYE/SAVE, etc. that is taxable income. Public Service Loan Forgiveness, however, is not taxable (at least it is not federally taxed, and only like four states will tax it).

PSLF forgiveness monies as not taxable income, when other loan repayment programs are. Could locate something that clarifies that in a more official manner? I was not aware there was a division in home loan repayment dispersals by the Gov were then viewed by the IRS. Interesting if this is true.

 

[sloop]

PSLF forgiveness monies as not taxable income, when other loan repayment programs are. Could locate something that clarifies that in a more official manner? I was not aware there was a division in home loan repayment dispersals by the Gov were then viewed by the IRS. Interesting if this is true.

https://studentaid.gov/help-center/answers/article/loan-amounts-forgiven-under-pslf-taxable

 

[calvnandhobbs68]

Taxes are weighed heavily against earned income. The "simplification" of the tax code with the increased standard deduction just made this more so. Your $2.5k in interest isn't going to get you above that standard deduction, particularly when state and local taxes are capped at $10k deduction.

You don’t have to itemize deductions to claim the student loan interest deduction, you just have to be below the income thresholds (which you’ll only be as a resident/fellow). It’s an adjustment to income so you don’t have to fill out a Schedule A to claim it.

 

[funtertaining15]

to clarify- I’m aware that if you don’t do pslf or similar that your loans are taxable. My question is not how much but when/duration. If I want to pay off my loans in 3 years for example, and I pay x amount each month, is the amount I am paying considered income each year until it is paid off? Ie I pay 58K in the year 2024, so that amount is considered income and taxable just for that year, correct? And say 3 years later, I make my last payment, correct? So after I pay taxes for that year, that’s it?Silly question but just wanting to clarify is all.

 

[calvnandhobbs68]

to clarify- I’m aware that if you don’t do pslf or similar that your loans are taxable. My question is not how much but when/duration. If I want to pay off my loans in 3 years for example, and I pay x amount each month, is the amount I am paying considered income each year until it is paid off? Ie I pay 58K in the year 2024, so that amount is considered income and taxable just for that year, correct? And say 3 years later, I make my last payment, correct? So after I pay taxes for that year, that’s it?Silly question but just wanting to clarify is all.

What?

Are you asking if the income you use to pay your student loans is taxable? Yes it is, only the interest is deductible as noted above under certain income thresholds.

 

[Geraltofrivia]

If you get paid $158k/year (after taxes) and you take $58k to pay off a loan in that same year you are using "after tax" money to pay the loan. I do not believe you will then get a $58k tax for having paid off the loan though. But you won't, or at least to my understand, should not, be taxed $58k on TOP of the $58k you paid (like a double tax)

 

[Merovinge]

If you get paid $158k/year (after taxes) and you take $58k to pay off a loan in that same year you are using "after tax" money to pay the loan. I do not believe you will then get a $58k tax for having paid off the loan though. But you won't, or at least to my understand, should not, be taxed $58k on TOP of the $58k you paid (like a double tax)

Correct, you pay loans with after tax dollars (either from your bank account or if you employer pays it for you, you still owe taxes either way). There certainly is no double tax on loans repaid, that would be absolutely absurd.

 

[comp1]

Oh wow, the question ended up being a lot simpler than all of us were imagining.