LOUISVILLE, Ky. (WDRB) -- Kentuckians who receive student debt forgiveness under President Joe Biden's plan will not owe state income taxes on the balances forgiven, according to state officials.
When debts are erased, the people who no longer owe the money generally have to consider the forgiven balance taxable income.
But the federal government exempted forgiven student debt from federal income tax for the years 2022 through the end 2025 as part of the Democrat-led American Rescue Plan Act of 2021.
The Kentucky legislature earlier this year adopted language matching the state's tax policy to the federal government, which means student debts forgiven are also exempt from Kentucky income tax, according Jill Midkiff, spokeswoman for the Kentucky Finance & Administration Cabinet.
The Hill reported last week that Kentucky was among 13 states that might tax student debts forgiven under the Biden plan, which provides up to $10,000 in relief for most borrowers with a balance and up to $20,000 for recipients of federal Pell Grants.
But the Hill's story was based on a blog posted by the Washington-based Tax Foundation, which has since been corrected.
Kentuckians pay an income tax of 5%, but the Republican-led legislature plans to gradually reduce the tax over the next few years. The rate is scheduled to drop to 4.5% next year. Â
