LANSING, Mich. — The Michigan Senate on Wednesday approved Sen. Rick Jones’ legislation to ensure disabled veterans do not have to pay state income tax on student loan debt that was forgiven due to the veteran’s injuries.
“I sponsored this bill after hearing about the shameful actions by the IRS against a permanently disabled veteran in my district who honorably served his country,” said Jones, R-Grand Ledge. “Due to the service-related disability of this local veteran, a compassionate federal official forgave his student loans. Then the cold-hearted IRS demanded the disabled veteran pay income taxes on the more than $220,000 in forgiven student loans all at once.”
Senate Bill 642 would ensure that if a veteran is permanently disabled as a result of military service, and the federal government cancels student loan debt because of that disability, then that debt cancellation would not be counted as income for tax purposes in Michigan.
Jones said that since the IRS treats debt cancellation as income, the veteran in his district is being asked to pay federal income taxes on the entire amount. He was able to reduce the loan forgiveness to $161,000, but the federal tax bill remains $62,000.
The state of Michigan follows the IRS on how debt cancellation is treated, so the state is also asking him to pay $8,000 in state income taxes and fees.
“It’s a disgrace what our government is doing to this disabled veteran — including garnishing his disability benefits and putting a lien on his house,” Jones said. “I am hopeful that Congress will correct this terrible situation. In the meantime, my bill would ensure that no disabled veteran is ever treated like this when it comes to their state income taxes.”