In a move that typifies the illogic of Washington, the Treasury Department, who is responsible for the Internal Revenue Service, has missed a grand opportunity to label student loans forgiven because of a total and permanent disability as being free from a tax liability or penalty.
As it stands now, consumers who have their student loan debt forgiven under the Total and Permanent Disability (TPD) Discharge continue to fax a tax liability for the forgiven debt.
According to HuffPo, “The Obama Administration has repeatedly urged Congress to enact legislative changes to address the possible tax consequences of loan forgiveness faced by these borrowers, as well as others with student loans,” Treasury spokesman Rob Runyan said in a statement. “Congress has not yet enacted these legislative changes. Treasury continues to work with the Department of Education to evaluate possible alternatives that could address the situations faced by these borrowers.”
The failure to properly navigate the cloudy waters on tax liability following forgiveness can lead to an audit or even a wage garnishment of Social Security benefits by those who can afford it the least.
“In 2015 alone, the federal government garnished 110,000 seniors’ Social Security benefits to pay off student loans on which they had already defaulted, according to a Government Accountability Office study requested by Warren and Sen. Claire McCaskill (D-Mo.) that came out this week. Some 70,000 Americans over 50 live in poverty as their Social Security benefits are cut to pay off student debts, the report found.”
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