August 2022 Update – Student Loan Forgiveness, Inflation Reduction Act

The last few weeks we have seen major headlines on student loans and the Inflation Reduction Act. We wanted to provide a short summary of these two items to answer any initial questions you have.
We will also be following up on these topics during our Fall meetings.

Student Loan Forgiveness

Details on the plan for student loan forgiveness

We are still waiting on the fine print to be finalized. The plan is also likely to face legal challenges before being finally implemented. But, here’s what we know so far:

The plan will forgive $10,000 in student loans for individuals making less than $125,000 per year or married families/heads of household making less than $250,000 per year.

For individuals who received a Pell Grant, the total amount of loans forgiven increases to $20,000.

There is no definition of “income” yet, though Adjusted Gross Income (AGI – Line 11 of your 1040 tax return) seems most likely as it is used elsewhere in the student loan program.

You will qualify for the forgiveness if your income was below the $125,000/$250,000 limit in either 2020 or 2021. As long as your income was below the limit in one of those years, you will qualify.

That also means that for most there are no further planning opportunities to defer income or reduce AGI. Unfortunately there is little we can do now to reduce your income for the 2020 or 2021 tax years today.

What types of loans are eligible?

Loan forgiveness is available for any federal (public) student loans, including Parent Plus and loans taken for graduate school.

This loan forgiveness plan only covers federal student loans. There is some discussion of trying to apply the forgiveness to privately held FFEL loans, however nothing is certain yet. Other private loans are not eligible for this forgiveness.

How do I enroll in the forgiveness program?

Hopefully, the forgiveness will be done automatically.

However, the Department of Education is also putting out a formal application program in the coming weeks. Check your student loan account or in the next few weeks to determine if you need to submit an application.

New income based repayment plan

In addition to forgiveness, there is also a new income-driven repayment plan available to borrowers beginning in July 2023.
There will not be an options for payments that are capped at 5% of your monthly income as opposed to the previous 10% cap.
For those benefiting from the current income based repayment plans, this will cut your monthly student loan payment in half.

Will loan payments continue to be paused?

Yes.  Student loan payments are now frozen through December 31, 2022. The administration seems clear that this will be the final extension. So, get your budget ready to resume payments starting in 2023.
This freeze will happen automatically. There is nothing you need to do to keep your payments halted.

Payments made since March 2020 can be refunded

If you had continued to make payments on your student loans during the payment freeze (anytime after March 13th, 2020), you are eligible to request a refund of those payments.

This has always been policy and is not new with this announcement. However, if you qualify for forgiveness based on your income, owe less than $10,000 on your student loans, and have been making voluntary payments since March 2020, you should request a refund so that you can take full advantage of the loan forgiveness.

What’s next?

Hopefully, the details of the plan and any required effort from you will become clear over the next few weeks.
As we wait for the fine print of the plan to materialize over the next few weeks, we encourage you to reach out to us if you have any questions. We are happy to help in any way we can!

The Inflation Reduction Act

What’s Included in the inflation reduction act?

The Inflation Reduction Act does not impact the day-to-day lives of American families. Unlike some original drafts of this bill, the final version has no impact on individual tax rates. There is authorization for funding environmental programs, changes to corporate tax rates, but not tax changes for individuals.

There are 2 significant changes that we see impacting our clients:


Affordable Care Act Premium Tax Credits

For those of you who purchase, or will purchase, health insurance from the marketplace at, this law extends the tax credits available to help subsidize the costs of these plans.

The current subsidy program in place for healthcare obtained under the Affordable Care Act has been extended to 2025.

This is an incredibly valuable tax planning strategy for those who qualify. We encourage those who are retiring before age 65 to reach out to us to see if you can benefit from these tax credits.

Medicare Part D

One of the critical components of the Inflation Reduction Act of 2022 is that it gives Medicare more freedom to negotiate the cost of certain prescription drugs. It also puts an annual cap on out-of-pocket costs for Medicare recipients of $2,000 (starting in 2025).

What does this mean for you?

If you’re concerned about how the Inflation Reduction Act of 2022 impacts your personal financial situation, we encourage you to reach out. We’re here to help you navigate any tax changes you may face! Please reach out to us to discuss.

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