CNBC: Here’s what student borrowers need to know about the 2023 tax season

It’s a strange time for people with federal student loan bills, which means your experience of tax season this year will likely be unusual as well.

The Biden administration’s plan to forgive up to $20,000 in student debt for tens of millions of Americans is on hold until the Supreme Court decides whether the relief policy is legal.

Meanwhile, most student borrowers’ bills also remain on hold under a pandemic-era policy.

Here’s what it all means for your Uncle Sam tax bill.

You Probably Can’t Claim Student Loan Interest Deduction

Prior to the COVID-19 pandemic, nearly 13 million taxpayers took advantage of the student loan interest deduction, which allows borrowers to deduct up to $2,500 per year in interest payments they made on their private or federal student loans.

The deduction, which reduces your adjusted gross income, is “above the line”, meaning you don’t need to itemize your taxes to qualify.

Here’s a look at some other tax planning news.

Since the U.S. Department of Education has allowed most federal student loan holders to suspend their monthly bills without accruing interest since March 2020, most borrowers have not made payments on their debt and, therefore, they are not eligible for the deduction, said higher education expert Mark Kantrowitz.

“You can claim the student loan interest deduction based only on the amounts actually paid,” Kantrowitz said.

Even if you continued to make payments during the break, you still probably won’t be able to claim the full deduction because your money went directly to the principal of your debt. The hiatus only affects interest payments, Kantrowitz said, and interest has been suspended for years.

(More recently, the Biden administration said billing would resume 60 days after the dispute over its grace plan is resolved or by the end of August, whichever comes first.)

Still, some people may be eligible for relief.

If you owe student loans that did not qualify for the government payment pause, including Federal Commercial Family Education Loans (FFEL) or any private student loans, you may have made student loan payments. interest which may be deducted.

The best way to determine if you have a potential interest to claim is to contact your loan officer, said Betsy Mayotte, president of the Institute of Student Loan Counselors.

Mayotte said he noted that there are income reductions for the break, and individuals who earned more than $85,000 and couples who earned more than $175,000 in 2022 are not eligible at all.

Borrowers’ eligibility for the deduction may also be reduced if their employer made payments on their student loans as benefits, Mayotte added.

Your lender reports your interest payments over a certain amount to the IRS on a tax form called 1098-E, and must also provide you with a copy. Depending on your tax bracket and the amount of interest you paid, the deduction could be worth up to $550 a year, Kantrowitz said.

Loan forgiveness is unlikely to increase your taxes

If the Supreme Court allows the administration to go through with its debt relief plan, borrowers shouldn’t be affected by a federal tax bill next spring.

Indeed, the 2021 U.S. bailout made student loan forgiveness tax-exempt until 2025, and the law also covers Biden’s forgiveness, according to a White House fact sheet.

However, you may have to pay taxes on any canceled debt.

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This article It was originally published in English by Annie Nova for our sister network CNBC.com. For more on CNBC, head here.