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Hoosiers must pay state, county income tax on forgiven student loan debt | State

Hoosiers participating in the federal student loan forgiveness program currently are required to pay state and county income tax on the value of their eliminated debt.

A 2021 Indiana law mandates the total amount of forgiven student loan payments, which are exempt from federal income tax, be counted the same as earned income when it comes to calculating an Indiana resident’s state and local income tax obligations.

That means if the loan forgiveness plan proposed by Democratic President Joe Biden goes through this year, a Hoosier who gets $10,000 in student loan debt wiped off the books still will have to pay 3.23% of that amount, or $323, as income tax to the state of Indiana.

Pell Grant recipients who are eligible for up to $20,000 in student loan forgiveness likewise will owe 3.23% of the forgiven amount, or a maximum of $646, to the state.

Though should student loan forgiveness not go through until 2023, the amount owed to the state will decline slightly because Indiana’s income tax rate is dropping to 3.15% on Jan. 1.

At the same time, Indiana counties impose their own income tax obligations for which forgiven student loan debt also would count as earned income subject to tax.

The income tax rate in Lake County is 1.5%. As a result, a Lake County resident with $10,000 in forgiven student loan debt will owe an additional $150 in county income tax, on top of the $323 extra they’ll pay in state income tax.

In Porter County, the income tax rate is 1.25%. It’s 0.95% in LaPorte County, 1% in Newton County and 2.864% in Jasper County.

The obligation to pay state and county income tax on earnings not subject to federal tax is relatively unusual since Indiana generally conforms its tax statutes to match federal law for simplicity, among other reasons.

In this case, a paragraph tucked into page 118 of the 234-page, two-year state budget, signed into law April 29, 2021, by Republican Gov. Eric Holcomb, decoupled Indiana from the tax exemption for forgiven federal student loan debt included in the American Rescue Plan Act (ARPA) enacted by Biden March 11, 2021.

Ironically, even though Statehouse Democrats almost uniformly vote against the budgets proposed by the Republican-controlled House and Senate, nearly every Hoosier lawmaker supported House Enrolled Act 1001, including the provision requiring state taxation of forgiven student loan debt, because the budget included billions of dollars in extra spending for schools and other state needs made possible by ARPA.

State Rep. Greg Porter, D-Indianapolis, the top Democrat on the budget-writing House Ways and Means Committee, said Tuesday he now is planning, when the General Assembly convenes in early January, to propose retroactively eliminating the collection of state and county income tax on forgiven student loan debt.

Porter said that with Indiana boasting a $6.1 billion budget reserve it would be “unfair and needlessly counterproductive” to count Hoosiers’ forgiven debt as earned income and compel them to pay income tax on the amount.

“I can’t say I’m surprised Indiana has chosen to take a punitive stance on a policy meant to give working-class Americans relief, but there’s still time to change this,” Porter said.

“Many student borrowers have paid back their original loan amount and then some, but interest rates have kept them from paying off their debt and allocating that money toward buying a house, saving for retirement or starting a family. The federal government and the vast majority of other states have correctly chosen not to tax student debt forgiveness,” he added.

The U.S. Department of Education is expected to put out its debt forgiveness application in October. Porter said approximately 900,000 Hoosiers earning less than $125,000 a year, or $250,000 for a married couple, will be eligible to have some or all of their federal student loan debt forgiven.

However, a coalition of Republican state attorneys general, likely including Indiana’s Todd Rokita, is expected to file a federal lawsuit in the weeks ahead trying to stop the loan forgiveness program from going through.

U.S. Sen. Todd Young, R-Ind.; U.S. Sen. Mike Braun, R-Ind.; and Jennifer-Ruth Green, the Republican candidate seeking to represent Northwest Indiana in the U.S. House, also oppose Biden’s student loan forgiveness program.

Meet the 2022 Northwest Indiana legislative delegation

State Sen. Michael Griffin, D-Highland

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1 hr ago

State Sen. Michael Griffin, D-Highland

1st Senate District

Represents: Hammond (south side), Munster, Highland, Griffith, Dyer, Schererville

Experience: Former Highland clerk-treasurer; university instructor

Committees: Insurance and Financial Institutions; Local Government



State Sen. Lonnie Randolph, D-East Chicago

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State Sen. Lonnie Randolph, D-East Chicago

State Sen. Lonnie Randolph, D-East Chicago

2nd Senate District

Represents: Hammond, Whiting, East Chicago, Gary (west side), Griffith, Hobart, Merrillville

Experience: State senator since 2008, previously served 1994-98; attorney

Committees: Commerce and Technology; Insurance and Financial Institutions (ranking member); Judiciary (ranking member); Rules and Legislative Procedure; Tax and Fiscal Policy; Utilities (ranking member)



State Sen. Eddie Melton, D-Gary

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State Sen. Eddie Melton, D-Gary

State Sen. Eddie Melton, D-Gary

3rd Senate District

Represents: Gary, Lake Station, New Chicago, Hobart, Merrillville, Crown Point

Experience: State senator since 2016; community relations manager

Committees: Appropriations (ranking member); Education and Career Development; Health and Provider Services; Joint Rules; Rules and Legislative Procedure



State Sen. Rodney Pol Jr., D-Chesterton

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State Sen. Rodney Pol Jr., D-Chesterton

State Sen. Rodney Pol Jr., D-Chesterton

4th Senate District

Represents: Ogden Dunes, Portage, Chesterton, South Haven, Burns Harbor, Beverly Shores, Michigan City, Westville

Experience: State senator since 2021; attorney

Committees: Corrections and Criminal Law (ranking member); Environmental Affairs; Local Government; Pensions and Labor; Public Policy



State Sen. Ed Charbonneau, R-Valparaiso

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State Sen. Ed Charbonneau, R-Valparaiso

State Sen. Ed Charbonneau, R-Valparaiso

5th Senate District

Represents: Valparaiso, Hebron, Kouts, Jasper County

Experience: State senator since 2007; attorney

Committees: Appropriations; Ethics; Health and Provider Services (chairman); Rules and Legislative Procedure; Tax and Fiscal Policy



State Sen. Rick Niemeyer, R-Lowell

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State Sen. Rick Niemeyer, R-Lowell

State Sen. Rick Niemeyer, R-Lowell

6th Senate District

Represents: St. John, Cedar Lake, Crown Point, Winfield, Lowell, Newton County

Experience: State senator since 2014, state representative 2012-14; small business owner

Committees: Environmental Affairs; Local Government; Tax and Fiscal Policy



State Sen. Mike Bohacek, R-Michiana Shores

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State Sen. Mike Bohacek, R-Michiana Shores

State Sen. Mike Bohacek, R-Michiana Shores

8th Senate District

Represents: LaPorte County

Experience: State senator since 2016; consultant

Committees: Corrections and Criminal Law; Insurance and Financial Institutions; Judiciary; Local Government



State Rep. Carolyn Jackson, D-Hammond

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State Rep. Carolyn Jackson, D-Hammond

State Rep. Carolyn Jackson, D-Hammond

1st House District

Represents: Hammond, Whiting

Experience: State representative since 2018; retired Cook County, Ill., probation officer

Committees: Environmental Affairs; Family, Children and Human Affairs; Natural Resources



State Rep. Earl Harris Jr., D-East Chicago

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State Rep. Earl Harris Jr., D-East Chicago

State Rep. Earl Harris Jr., D-East Chicago

2nd House District

Represents: East Chicago, Gary (west side)

Experience: State representative since 2016; small business owner

Committees: Government and Regulatory Reform; Roads and Transportation; Ways and Means



State Rep. Ragen Hatcher, D-Gary

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State Rep. Ragen Hatcher, D-Gary

State Rep. Ragen Hatcher, D-Gary

3rd House District

Represents: Gary (downtown and east side), Lake Station, New Chicago, Hobart

Experience: State representative since 2018; attorney

Committees: Commerce, Small Business and Economic Development; Courts and Criminal Code (ranking member); Government and Regulatory Reform



State Rep. Ed Soliday, R-Valparaiso

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State Rep. Ed Soliday, R-Valparaiso

State Rep. Ed Soliday, R-Valparaiso

4th House District

Represents: Valparaiso

Experience: State representative since 2006; aviation safety consultant

Committees: Elections and Apportionment; Roads and Transportation; Utilities, Energy and Telecommunications (chairman)



State Rep. Pat Boy, D-Michigan City

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State Rep. Pat Boy, D-Michigan City

State Rep. Pat Boy, D-Michigan City

9th House District

Represents: Michigan City, Chesterton, Beverly Shores, Long Beach, Westville

Experience: State representative since 2018; retired small business owner

Committees: Environmental Affairs; Natural Resources (ranking member)



State Rep. Chuck Moseley, D-Portage

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State Rep. Chuck Moseley, D-Portage

State Rep. Chuck Moseley, D-Portage

10th House District

Represents: Portage, Chesterton, Ogden Dunes, Burns Harbor, South Haven

Experience: State representative since 2008; financial solutions associate

Committees: Employment, Labor and Pensions; Roads and Transportation (ranking member); Veterans Affairs and Public Safety



State Rep. Mike Aylesworth, R-Hebron

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State Rep. Mike Aylesworth, R-Hebron

State Rep. Mike Aylesworth, R-Hebron

11th House District

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Committees: Agriculture and Rural Development (vice chairman); Courts and Criminal Code; Environmental Affairs



State Rep. Mike Andrade, D-Munster

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State Rep. Mike Andrade, D-Munster

State Rep. Mike Andrade, D-Munster

12th House District

Represents: Munster, Hammond (south side), Highland, Griffith

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Committees: Commerce, Small Business and Economic Development; Employment, Labor and Pensions; Veterans Affairs and Public Safety



State Rep. Vernon Smith, D-Gary

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State Rep. Vernon Smith, D-Gary

14th House District

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Experience: State representative since 1990; education professor at Indiana University Northwest

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State Rep. Hal Slager, R-Schererville

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State Rep. Hal Slager, R-Schererville

State Rep. Hal Slager, R-Schererville

15th House District

Represents: Dyer, Schererville, St. John, Griffith

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Committees: Environmental Affairs; Ways and Means



State Rep. Douglas Gutwein, R-Francesville

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State Rep. Douglas Gutwein, R-Francesville

State Rep. Douglas Gutwein, R-Francesville

16th House District

Represents: Newton, Jasper counties

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State Rep. Julie Olthoff, R-Crown Point

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State Rep. Julie Olthoff, R-Crown Point

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19th House District

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Experience: State representative 2014-2018, reelected 2020; small business owner

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State Rep. Jim Pressel, R-Rolling Prairie

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20th House District

Represents: LaPorte County

Experience: State representative since 2016; small business owner

Committees: Commerce, Small Business and Economic Development; Roads and Transportation (chairman)



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