Teaching Tax Flow: The Podcast

In this episode of the Teaching Tax Flow podcast, hosts delve into the intricate relationship between student loans and taxes, a subject often misunderstood yet crucial. They explore the impact of student loans on financial planning and tax liabilities, dissecting significant elements such as the student loan interest deduction and loan forgiveness. The discussion is enriched by Chris Picciurro’s expert insights into strategies for managing student loans in conjunction with taxes.

Listeners will gain a comprehensive understanding of how student loan interest deductions work, emphasizing key points such as the distinction between above-the-line and itemized deductions. Chris provides critical analysis of the existing thresholds for income and their effects on deductibility for taxpayers. Moving into the second segment, the conversation pivots to student loan forgiveness, detailing changes brought by the American Rescue Plan Act and its implications for tax-free debt forgiveness. Finally, the episode introduces innovative updates from the Secure 2.0 Act on employer contributions toward student loans, opening up new avenues for employee benefits and financial planning.


Key Takeaways:
  • The student loan interest deduction allows for a deduction of up to $2,500 annually, offering an above-the-line benefit but phasing out at certain income levels.
  • The American Rescue Plan Act establishes temporary tax-free loan forgiveness from 2021 to 2025, significantly affecting individuals in forgiveness programs.
  • Permanent exclusions allow certain professions, like public service workers and teachers, to benefit from tax-free forgiveness under specific conditions.
  • The Secure 2.0 Act facilitates employer contributions to student loans in lieu of retirement fund contributions, promoting financial relief for employees.
  • Careful planning around filing status could optimize student loan repayment strategies, aligning with income-based repayment and forgiveness goals.

Notable Quotes:
  • "One of the rule changes was the forgiveness of student loan debt and the taxability of that." – Chris Picciurro
  • "The IRS allows taxpayers to deduct up to $2,500 of interest paid on any qualifying student loan annually."
  • "One of the reasons that you would file married separately has to do with student loan debt."
  • "The American Rescue Plan Act of 2021 put a temporary exclusion for student loan debt forgiveness between the years of 2021 and 2025."
  • "Employers now can contribute to student loan payments so instead of the employer funding a retirement plan contribution."

Resources:

Episode Sponsor:
Integrated Investment Group
www.integratedig.com
  • (00:03) - Exploring Student Loans, Taxes, and Financial Implications
  • (02:26) - Understanding the Student Loan Interest Deduction and Its Limitations
  • (05:11) - Humorous Banter About Loan Eligibility and Borrower Requirements
  • (05:59) - Student Loan Interest Deduction and Tax Filing Strategies
  • (09:21) - Strategies for Managing Student Loan Repayments and Tax Deductions
  • (10:32) - Tax-Free Student Loan Forgiveness Under American Rescue Plan
  • (12:16) - The Perils of Attempting Cartwheels and Potential Injuries
  • (13:25) - Tax-Free Student Loan Forgiveness for Public Service Workers
  • (16:30) - Employers Can Contribute to Student Loans Instead of Retirement
  • (19:16) - Subscribe for Tax Tips and Join Our Private Group

Creators & Guests

Host
Chris Picciurro
Founder, Teaching Tax Flow
Host
John Tripolsky
VP of Marketing, Teaching Tax Flow

What is Teaching Tax Flow: The Podcast?

Welcome to “Teaching Tax Flow: The Podcast”, the show that’s all about demystifying taxes and helping you keep more of your hard-earned income in your pocket.

Hosted by tax experts from the Teaching Tax Flow team, this unfiltered (but clean) podcast is designed to empower you with the knowledge and tools you need to confidently navigate the world of taxes. We’ll cover everything from understanding tax laws and regulations to maximizing deductions and credits.

In each episode, we’ll break down a specific tax-related topic in a clear and accessible way, providing practical tips and strategies you can use to optimize your tax situation. We’ll also answer listener questions, share the mic with amazing guests, and share real-world examples to help illustrate key concepts.

Whether you’re a freelancer, small business owner, real estate investor, or just looking to understand your taxes better, this podcast is for you. So tune in, take notes, and start building your confidence in taxes today.

Produced and hosted by Teaching Tax Flow.
www.TeachingTaxFlow.com

Intro:

Welcome back to the teaching tax flow podcast, everybody. Today, episode 114. We're gonna look at student loans and taxes. So what that means for you if you do have a student loan, if you have a youngster thinking about taking 1, we're gonna dive into it here as a team, discuss with you some of the, we call pros and cons of those, but, again, how it relates to taxes. And before we do that, though, let's take a brief moment as always and thank our episode sponsor.

Ad Read:

Are you leaving money on the table? Are you an accredited investor seeking new and exciting investment opportunities? Look no further than Integrated Investment Group, your trusted partner in financial success. At IIG, the focus is on delivering exclusive investment options tailored to your unique needs and goals. Contact them today and let their expert team guide you toward your financial aspirations.

Ad Read:

Wondering if you qualify as an accredited investor? Wondering if you qualify as an accredited investor? Visit teachingtaxflow.com backslash I I g to find out and take the first step towards a brighter financial future. Integrated Investment Group. Your path to financial success begins here.

Ad Read:

Securities offered through Cabin Securities. Member FINRA SIPC.

John Tripolsky:

Alright, everybody. Welcome back to the podcast. As you heard in the intro, we're gonna talk about student loans and how it relates to taxes. Something that may may not really click with me right out of the gate. Right?

John Tripolsky:

You think about it. Oh, wait. I have I have a loan student loan. Maybe it's gonna get forgiven. Maybe.

John Tripolsky:

Maybe not. You know? Does that have to do anything with taxes? Well, we're here. We're gonna talk about this here in just a moment, and welcome back to the show as always.

John Tripolsky:

Chris Picciurro. How's it going, my man?

Chris Picciurro:

It's going well. Thanks for asking. And yeah. Well, this has been a topic that, you know, that gets asked. As you may or may not know, I have the honor of being one of the, tax season update instructors for the National Association of Tax Professionals.

Chris Picciurro:

One of the rule changes was the forgiveness of student loan debt and the taxability of that. So we're gonna talk about that in the second part of the show, but we're gonna start the show off by talking about the student loan interest deduction. The student loan interest deduction is a, what we call in the business, an above the line deduction. And that means that it gets deducted before we calculate your adjusted gross income. And it allows taxpayers to take a a deduction for a portion or all or a portion of the student loan interest that they're paying.

Chris Picciurro:

Now remember, one of the laws of teaching tax flow is that your tax agencies are your involuntary business partner. Tax laws are in encourage and discourage certain behavior. These could be financial, social. So what what are we saying here is that in general, the federal government is is pretty generous with giving student loans out to taxpayers. They are somewhat generous about allowing you to deduct said student loan interest.

Chris Picciurro:

This is one of those things that that I personally I usually don't get into my personal opinions too much about things here. Usually try to be a scoreboard. I personally feel that it is, it could be a much, much more generous, deduction. And it it's it falls into that all hat, no cattle category for me. And and what what that means is that the vast majority of people that are paying student loan interest are either getting phased out of the deduction or not being able to deduct a good portion of it.

Chris Picciurro:

And quite frankly, many of the people if you look at the statistics, many of the people that have have, have student loan interest and have graduated from a a higher institute, of learning, like university or college, typically, in general, will have a decent amount of income and give phase not even taking this deduction. But let's talk about it because it could be helpful. And it is a deduction that I've seen get missed. People just don't don't realize it. So what is a deduction?

Chris Picciurro:

Well, the IRS allows taxpayers to deduct up to $25100 of interest paid on any qualifying student loan annually. And I get again, that's an adjustment to your income. So it's this is this deduction is better than what we call an itemized deduction. You can take the standard deduction and still qualify for the student loan interest deduction.

John Tripolsky:

That's good to know. You know? Yeah. And, basically, what you were saying there is you said a lot of people just kinda tend to miss this, or when you say miss it, they they sometimes forget that they can even deduct this. Is that what what you meant by that?

Chris Picciurro:

Absolutely. Yeah. They could forget they they they even have that opportunity. So what qualifies? Well, you have to have a qualify or how do you get the deduction?

Chris Picciurro:

You have to have a qualified loan. So the loan had to be taken out for the purposes of higher education. John, when you took that loan out and went and bought a Camaro, that doesn't qualify. Sorry.

John Tripolsky:

Bummer. Oh, man. I was I was trying to think of some smart smart remark. But, you know, you did pick a pretty good car to use there as a, as a foe example. At least you didn't say Well,

Chris Picciurro:

and I figured go

John Tripolsky:

buy a Honda Civic or something.

Chris Picciurro:

It had well, it had to be a GM car, John. There you go.

John Tripolsky:

You you know well. You you know me well.

Chris Picciurro:

Yes. You have to be an eligible borrower borrower ma'am, borrower. Good grief. That came out like a it's a

John Tripolsky:

you're in the holiday spirit, my man. It's all good.

Chris Picciurro:

That came out like a farthesturch,

John Tripolsky:

You got me. You have

Chris Picciurro:

to be eligible. I you know, if you don't you don't qualify if the if the borrower borrower

John Tripolsky:

Come on, buddy. You got it. Is the one you're saying. You gotta get out there. Yeah.

John Tripolsky:

We're gonna have you know what? We're gonna have to send you back to college, but we're gonna send you back to the English course.

Chris Picciurro:

We're gonna have a speech therapist over the house, you know, later this afternoon. You have to you have to it has to be for educational use, like we said, and married taxpayers filing filing separately cannot take the deduction. Now that seems like, man, that the IRS is really being a meanie, aren't they? There's a reason. The reason is that there are phase outs due to income, and so you can't take the deduction if you're filing married separately.

Chris Picciurro:

And like I said, there are income thresholds. We're gonna talk about that next because I feel like they should be more generous. So I think the IRS is being a meanie when it comes to these thrust. It's actually not the IRS. It's the it's the federal government.

Chris Picciurro:

The IRS is just the police force. You know, they don't they don't make the laws.

John Tripolsky:

Right. Right. And I know this topic just as a whole here, you know, as we talk about, you know, the relationship of student loans and tax. There's not a whole lot of which we we won't say there's not a whole lot of meat on this, but this really isn't a a 30 or a 45 minute discussion on this because a lot of it's it's pretty straightforward for the most part. Right?

John Tripolsky:

Like, there's it's not like we can go off and do a lot of theories and concepts and all this stuff. There's there's a limited amount of information out there on this, should we say.

Chris Picciurro:

Correct. So when does this phase out occur? I'm gonna talk about the 2023 tax year. I know we're in we're in 2024, but we just finished filing season for 23 with extensions. The phase out starts for single taxpayers at $75,000 of adjusted gross income, 155,000 for married filing joint.

Chris Picciurro:

The deduction is completely phased out if your adjusted gross income for a single person exceeds 90,000 and185 for married joint. So if you are a single taxpayer and make $90,000 or more of adjust your gross income, you're on Santa's bad list when it comes to student loan interest deduction, and you get nothing. If you're between 7590, you get a portion. And if you're under 75, you get up to $25100 per year of student loan interest. And, again, same for the married jointly, it's 155 and and 185.

Chris Picciurro:

I think that that, again, I think those threshold phase outs, and I'm not the only one, are not very generous. Now it'd be remiss if I didn't mention this. This is a different topic when we talk about filing status and when you in in there are some unique situations where you would be better off filing married joint or married separate than married jointly. One of the reasons that you would file married separately has to do with student loan debt. It doesn't have to do with a student loan interest deduction, but many student loan debt repayment schedules are based on your income.

Chris Picciurro:

So if you are filing jointly, that takes into account your spouse's income instead of just your income. So there are times where you might wanna file very jointly to make sure that your debt repayment or your student loan repayment, monthly payment is either exempt or 0 or very, very low. And that kind of plays a role in our second thing we're gonna talk about, but I would be remiss if I said if I didn't mention that part of it.

John Tripolsky:

Makes total sense. Makes total sense. And, yes, as we kinda go through this, right, like, it's it is interesting. And and back to what you said before is, like, people sometimes even forget about it. Maybe it's, you know, they made say they got out of school.

John Tripolsky:

They had a good opportunity. They made a bunch of money and maybe there was a career shift. Maybe now they're below that threshold. Right. So that's and I imagine that kind of resets itself, obviously based year over year, not the, you know, the year that you started any repayment program as far as for taking that as a as a deduction.

John Tripolsky:

So

Chris Picciurro:

Actually, that's a great point, John. There is no look back period. There are some things that I have a look, but for instance, when we talked about that, the, the the clean vehicle credit for individuals, there's a look back period where you can there's an income threshold and you can either factor in your previous year's tax or the tax year of the purchase of of a vehicle. For this, there's no look back period. And that's why I'm saying is a lot of people that have student loan debt interest are actually paying, are making money in excess of the threshold.

Chris Picciurro:

So they don't The the ultimately, the whole student loan interest is now a personal expense. Now I talked about sometimes you the filing your filing status could affect how much your payment your payback is. Ultimately, you're gonna have to pay your student loan interest back or your student loan debt anyway in general, but there are some new there are some relatively new rules under the American Rescue Plan Act of 2021 that allows for for forgiven student loan debt to be tax free. That so if you think you're going down the path where your student loan debt's gonna be forgiven, you wanna lower the amount of repayment. Right?

Chris Picciurro:

Who wants to when and and that comes down to tax planning and filing status. In general, any forgiveness of debt is considered taxable income. So that's your default. However, this American Rescue Plan Act of 2021 put a temporary exclusion for student loan debt forgiveness between the years of 2021 2025. So on in this situation, loans forgiven under most federal or private forgiveness programs are not included in taxable income.

Chris Picciurro:

And this provision applies to both federal student loans and private educational loans, assuming that the forgiveness meets the program requirements. So we're gonna talk about the what those requirements are. But it so if if you have a student loan debt that got forgiven between 21 and and coming up here into 2025, you might be scot free. You might say, look, not only do I not have to pay the student loan back, I don't have to pay tax on that debt forgiveness or cancellation of debt, it's called.

John Tripolsky:

So that's like 2 high fives.

Chris Picciurro:

It's a double high five. It's almost a cartwheel. Right.

John Tripolsky:

Yeah. Perfect.

Chris Picciurro:

You don't if you look. You don't wanna see either one of us try to do a cartwheel.

John Tripolsky:

No. No. That it would it would be a bad situation.

Chris Picciurro:

It would be very bad, and it'd probably be an injury. We'd probably we'd probably be in physical therapy. So not only would I have a speech therapist coming over here, I'd also have someone coming over to help me move around.

John Tripolsky:

Right. Oh. Oh, boy. Oh, boy.

Chris Picciurro:

So and then so under the American Rescue Plan Act, there are some permanent exclusions for certain programs as well. So that temporary exclusion is from 21 to 25 for student loan debt forgiveness being taxable. Okay? But the American Rescue Plan said, you know what? We need we need some people in certain industries.

Chris Picciurro:

Remember, tax laws are written to encourage and discourage certain behavior. So we need some people in some industries, and we're gonna we're gonna say, you know what? We're gonna we're gonna make that student loan debt, forgiven and tax free if if you meet one of these exclusions. And those exclusions are gonna be public service loan forgiveness. So public service loan forgiveness, is not taxable if the loan is forgiven, but they require the borrowers to make a 120 qualifying payments while employed full time in an eligible public service job, like government or nonprofit role.

Chris Picciurro:

So that's what I'm that's why you you might wanna file let's say you're married you got married, you might wanna file separately to keep those payments really low. Ultimately, let's say you work for in a in a government service job or you work at a nonprofit. Okay. If you have a student loan debt and you make your payments for 10 years, whatever you owe at the, after that 10 years could be for basically forgiven and tax free under this public service loan forgiveness program. So that's pretty generous, especially for so because we do need more people in public service jobs, in government, and in nonprofit roles.

John Tripolsky:

Right. Right. And for that one, I guess, kind of an odd question maybe is so even though so oh, I see it actually. Now looking back at our note a little bit where you had mentioned it was previous exclusions or I'm sorry, a permanent exclusion. So this doesn't fall into that between 21 and 25.

John Tripolsky:

So this is something that moving forward. I see. We actually wrote that down here.

Chris Picciurro:

Yeah. Yes. And I was unclear a little bit. So the our American Rescue Plan gave us that temporary exclusion for student loan debt forgiveness, but these are permanent. So really nice for the public service loan forgiveness.

Chris Picciurro:

There's Absolutely. Teacher loan forgiveness. So teachers in low income schools that meet certain criteria can qualify for forgiveness up to $17,500. Again, their loan let's say they have a student loan for $35,000 and it gets completely forgiven. A teacher in a qual in a low income school that meets the criteria.

Chris Picciurro:

70 $17,500 of that would be tax free. The other amount would be taxable, but, hey, I'd rather pay the tax on $17,500 than pay it all back. Right? And you might be at a lower marginal tax rate. If student loan balances forgiven due to borrower's death or permanent disability are now excluded from taxable income as well.

Chris Picciurro:

So that's that and that makes sense. Right? I mean, what happens if you, god forbid, you have you you you have a student loan debt and you start working and something happens where you're you're permanently disabled. You can't work anymore. You really can't earn income to pay the student loan back that would be forgiven in in in tax free.

Chris Picciurro:

So those are things to think about when you when you're talking to in playing doing tax planning, even financial planning to an extent for for younger, let's say, not just younger, but taxpayers that are just getting out of school, getting into the workforce, plan and, you know, their student loan debt could be more than a mortgage. Right? Especially what if they went to law school or medical school. So there are a lot of planning has to be involved when it comes to that. And I have one more little fun thing to sprinkle into this, conversation before we

John Tripolsky:

What you got?

Chris Picciurro:

What you think?

John Tripolsky:

Boy on. So

Chris Picciurro:

under this so now we're gonna shift gears. It's related to student loans, but not necessarily the student loan interest deduction. But I I feel that we'd be remiss without mentioning that. Under the sec so what do we know? We know that a lot of younger people are not contributing enough to their retirement plan.

Chris Picciurro:

We know that the secure 2.0 act was enacted to make to allow more money to be contributed to retirement plans because, one, the Social Security Fund, there's concerns about that. And just in general, people aren't funding their own retirement plan as much. So one of the things that secure 2.0 acted, 2.0, there was a secure act of 2019. This secure 2.0 act came in in 2022, but employers now can contribute to student loan payments. So instead of the employer funding a a retirement plan contribution, employers can make retirement plan contributions on behalf of employees who are repaying student loans.

Chris Picciurro:

So it could help. So the employer can, instead of contributing to retirement plan, put the employer contribution in into paying off a student loan.

John Tripolsky:

Interesting. Interesting.

Chris Picciurro:

Yeah. And and it can you know, I I've yet to see this actually happen. But but, again, it's it's out there. And that started here in 2024.

John Tripolsky:

And, honestly, I haven't even heard of that either. So that's, you had some news right there. Interesting.

Chris Picciurro:

And it and it, ultimately, it helps, you know, it helps with employee retention. It helps the it take the burden, you know, because again, that that student loan repayment monthly monthly repayment amount could be really a significant amount of us of of someone's, you know, discretionary income. So if you have a if you have a new team member and the employer says, hey. I wanna put money in your retirement plan. The the the employee might say, you know what?

Chris Picciurro:

It'd be really much more helpful for you to to pay some of my student loan payments.

John Tripolsky:

Yeah. And I'm sure yeah. I think it's like you mentioned, I'm sure some people really that's very beneficial. I'm on both sides of the fence.

Chris Picciurro:

Exactly. So if you have an employer, if you're an employer or you you know, you know and and you have you think this might be helpful, just reach out to your tax professional or jump into the defeating taxes private Facebook group, and we'll help guide you in the right direction.

John Tripolsky:

Awesome. Awesome. Well, everybody, I know we're, you know, we're kind of inching towards the end of the year, obviously, right in between this little sweet spot of the holidays. So just wanted to get this one out there as well as and, I was just looking at this too, Chris, as as you were chatting a little bit just on our kind of our topic schedule for 25. So I know we got some good stuff on there, and we're always looking for ideas.

John Tripolsky:

So if you guys have some some topic suggestions as we mentioned, you know, a little bit more than most on the last episode that we did, shoot them over to us. We'd we'd love to hear them. Worst case scenario, they might not happen next week, but we could change up our schedule a little bit. We could adjust. And, you know, as things come up, we usually like to address them as quick as possible while they're relevant.

John Tripolsky:

So that way, you know, you don't have to necessarily search through Google for information. You could just subscribe to the podcast. Little little humble, humble brag there. We tend to be a little bit more credible than a Google search. So just say just saying what's true.

John Tripolsky:

But definitely check us out if you haven't yet. Again, subscribe to the podcast. Check us out. Subscribe to our YouTube channel, in defeating taxes. So defeating taxes.com, that will actually take you direct to that private Facebook group you are invited to, so you can't say we didn't send you a present.

John Tripolsky:

Sure. We didn't wrap it up. We didn't deliver it to you under your tree, but that's your invite, defeating taxes.com. We'll get you in that group. So as always, this one is a little bit shorter, though, than most, but we'll see you back here again on the Teaching Tax Well podcast next week, different time and per our schedule.

John Tripolsky:

Completely, completely different topic. So have a great rest of the year, everybody, and but we'll see you here next week. Have a good one.

Disclaimer:

The content provided is for educational purposes only. We encourage you to seek personalized investment advice from your financial professional. For all tax and legal advice, please consult your CPA or attorney. Investment advisory services are offered through cabin advisors, a registered investment advisor.

Disclaimer:

Securities are offered through Cabin Securities, a registered broker dealer. The content of this podcast does not constitute an offer of securities. Offerings can only be made through an offering memorandum and you should carefully examine the risk factors and other information contained in the memorandum.