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Ask The California Employment Tax And Payroll Tax Attorney – Payment Of Income Taxes On Cancelled Student Loans

By Robert S. Schriebman

2022

The Biden Administration has been setting forth proposals to cancel either wholly or partially student loans. What the eventual outcome will be will depend upon Congress. Under the tax law, as it has existed for decades, you will find IRC § 61 that defines what is taxable income. This section states in substance that gross income means all income from whatever source derived, including but not limited to income from the discharge of indebtedness. This means that unless Congress so acts, any federal loan cancellation is subject to being realized and recognized as taxable income. Congress knows of this very fundamental principle of taxation and is going to have pass legislation stating that student loan debt cancellation will not result in taxable income. Most likely this will happen – student debt cancellation and the non-recognition of income will go hand-in-hand.

What is California doing to make sure you do not have to pay the FTB? The FTB operates under the same rule of debt-cancellation income that is found in the Internal Revenue Code (R&TC § 17071). According to a new source, dated November 8, 2022, California Governor Newsom has requested that the Legislature enact legislation that will ensure Californians will not have to report student loan cancellation indebtedness to the FTB as taxable income. Governor Newsom’s proposal will be part of his new budget which will be released in January 2023.

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Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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