Lenders should not report student loans discharged under ARPA

Lenders should not report student loans discharged under ARPA
Written by Publishing Team

Lenders and holders of most student loans should not file Form 1099-C, debt cancellation, for loans repaid from 2021 to 2025, in which borrowers do not have to include these exempt amounts as income for tax purposes, the IRS said Tuesday.

Guidance in Notice 2022-1 relates to a provision of the American Rescue Plan Act (ARPA), PL 117-2, passed in March 2021. ARPA added a special rule in Sec. 108(f)(5) provides that a taxpayer’s gross income does not include any amount disbursed after December 31, 2020, and before January 1, 2026, for certain loans expressly provided for post-secondary education expenses, either through an educational institution or directly to the borrower.

Covered loans are those that have been granted, secured or secured by the United States or its organs or agencies; the state, territory, or possession of the United States, the District of Columbia, or any of its political subdivisions; or by an eligible educational institution, as specified in Sec. 25 a. This provision also includes some student loans from educational institutions and private lenders.

The notice informs lenders and these loan providers that they are not required, and should not, file information returns or payee statements (for example, Form 1099-C) to report a student debt release to the IRS or borrower, which could cause The IRS mistakenly issues a notice of underreported income that confuses the borrower.

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