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Do you make an excessive amount of for student loan forgiveness? Here’s what to know


Should you’re certainly one of the tens of millions of Americans with student loans, President Joe Biden’s forgiveness plan could also be welcome relief.

Nevertheless, there are some key things to know in regards to the income limits, experts say.

Biden will cancel $10,000 for many borrowers or as much as $20,000 for Pell Grant recipients, limited to those making lower than $125,000 per 12 months or $250,000 for married couples filing together or heads of household.

And financial advisors have already received a flurry of client questions, including whether their income could also be too high to qualify for the debt relief.

More from Personal Finance:
Are your student loans eligible for federal forgiveness? What we all know
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‘It is a game changer.’ Pell Grant recipients react to student loan forgiveness

“I actually have lots of clients who’re somewhere on the cusp,” lots of whom are mid-career, dual-earning households, said Ethan Miller, a licensed financial planner and founding father of Planning for Progress, specializing in student loans within the Washington, D.C., area. 

Adjusted gross income is the ‘magic number’

While eligibility could also be simpler for borrowers far below or above the bounds, it could be trickier for those near the $125,000 or $250,000 thresholds.

That is since the number is predicated on so-called adjusted gross income, or AGI, which could also be different than your gross salary.

“It is the magic number,” Miller said, noting the U.S. Department of Education uses AGI for existing income-based student loan repayment plans.

It’s possible you’ll be eligible for forgiveness in case your AGI was below the $125,000 or $250,000 thresholds in either the 2020 or 2021 tax 12 months.

And 2020 could also be significant for anyone who lost a job or earned less throughout the first 12 months of the pandemic, in accordance with CFP Tommy Lucas, an enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

Tips on how to calculate adjusted gross income

You calculate AGI by adding up your earnings — including salary, interest and more — and subtracting the items on Part II of Schedule 1 in your tax return, explained Lucas.

A few of those items may include deductible individual retirement account or health savings account contributions, educator expenses and more, he said.

For instance, eligible couples under 50 who made deductible IRA deposits could have reduced adjusted gross income by $12,000 for 2020 or 2021. 

For most people, your gross income and adjusted gross income are going to be pretty close, if not the identical.

Tommy Lucas

Financial advisor at Moisand Fitzgerald Tamayo

“The massive one is the deductible IRA,” Lucas said. Nevertheless, the deadline for 2020 or 2021 IRA contributions has already passed.

But for those who made a deductible IRA contribution for either 12 months, you will need to make certain it was included on Schedule 1 of your tax return and reflected in your AGI.

If not, you possibly can consider amending your tax return electronically, especially if reducing your AGI by that quantity “makes or breaks it” for forgiveness eligibility, Lucas said.

In fact, it could take time for the IRS to process an amended return, so you will need to act quickly, he said.

AGI may vary more for self-employed borrowers

Should you’re a full-time Form W-2 employee without other income or deductible IRA contributions, it’s less likely you will see a difference between gross income and adjusted gross income, Lucas said.

Self-employed filers or contract employees, nonetheless, typically have more opportunities to cut back AGI, including certain retirement plan deposits, medical insurance premiums, one-half of self-employment tax and more, he said.

“But for most people, your gross income and adjusted gross income are going to be pretty close, if not the identical,” Lucas said.

Where to seek out your AGI

While calculating adjusted gross income may involve a couple of steps, it’s also possible to find the number in your tax return.

To substantiate your AGI for 2020 and 2021, search for line 11 on the front page of your tax return, referred to as Form 1040, Miller said.

“I believe that it’s pretty straightforward for most individuals,” he added.

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