Does Student Loan Forgiveness Impact Your Taxes It’s Tricky
Millions of borrowers are eligible for up to $20,000 in student loan forgiveness. But will you owe taxes on canceled debt?
Courtney Johnston is an editor for CNET Money, where she manages the team’s editorial calendar, and focuses on taxes, student debt and loans. Passionate about financial literacy and inclusion, she has prior experience as a freelance journalist covering investing, policy and real estate. A New Jersey native, she currently resides in Indianapolis, but continues to pine for East Coast pizza and bagels.
President Joe Biden announced several student loan relief efforts last week — most notably federal student loan forgiveness of $10,000 to $20,000 per borrower. This means if you’re one of the 43 million Americans who owe money on your federal student loans, a chunk of that debt could soon be canceled, if not disappear entirely, as long as you meet the income criteria.
If your student loans are forgiven, either through the recent announcement, the Public Service Loan Forgiveness program or an income-driven repayment plan, will you be required to pay taxes on the forgiven balances? Here’s everything you need to know about student loans and taxes, as well as some additional tax breaks that could lower your tax bill in 2023.
You Can File An Amended Tax Return On Your Own
People with simple tax situations and small changes might be able to file an amended tax return on their own. Many major tax software packages include modules that will file an amended tax return. Many tax preparers are happy to file amended returns as well.
And note: Amending your federal tax return could mean having to amend your state tax return, too.
What Happens If I Make A Mistake On My Tax Return
If you made a mistake on your tax return, know that this is a common situation.
Things like missing a receipt, overlooking a deduction, the late arrival of a tax slip, or entering a number incorrectly, can all be fixed.
So dont hit the panic button. You can amend your tax return with relative ease.
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How Do I Fix A Mistake On My Taxes After The Irs Accepts My Return
If youve found a mistake after the IRS officially accepts your return, you may wonder if theres anything actually wrong with it. After all, if the IRS approved it, doesnt that mean your tax return was fine?
That depends on the error on the return. You normally dont need to correct math errorsthe IRS will catch and make those changes for you.
On the other hand, mistakes having to do with personally identifiable information , filing status, dependents, total income, or tax breaks should be fixed, which is done by using Form 1040X.
How To Complete An Amended Return
You can file your amended return electronically, or on paper. If you file electronically, follow the instructions for your software provider.
In either case, make sure to indicate that its an amended return before filling it out.
For paper returns, mark the oval labeled Amended Return. Complete the new return using the corrected information, as if it were the original return. Do not make any adjustments to your amended return to show that you received a refund or paid a balance due with your original return. Attach a complete copy of your federal amended return, if applicable.
If your amended return results in additional tax due, interest must be paid on the tax you owe from the due date on the original return to the date filed or postmarked.
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Cancelling Slips Over The Internet
To cancel a slip, do not change any information that was contained on the original slip. Use summary report type code “A” and slip report type code “C.”
For more information about cancelling information returns using the Internet, go to How to amend.
If you cancel slips using the Internet, we may contact you to find out why.
How To Claim A Refund For Hmrc Errors And Mistakes
If you think youve paid too much tax because HMRC made a mistake, you can usually claim a full rebate. Youll need to claim within four years of the end of the tax year youre claiming for. This is called overpayment relief.
Overpayment relief claims must be made in writing and must:
- clearly specify that you are making a claim for overpayment relief
- identify the tax year for which you think you overpaid
- include the amount you think youve overpaid
- state why you think overpayment has happened
- state if youve previously made an appeal with the payment or assessment
- include a signed declaration that the information youve given is correct and complete to the best of your knowledge
You must also have documentary proof of tax deducted as you may need to provide this later.
If your claim is successful, a refund will be sent to your bank account within four weeks.
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How Do I Amend My State Tax Return
You can amend your state tax return in two simple steps:
Like the IRS, states typically use a special form for an amended return. Many states also use the X suffix for the form number. Some states allow you to e-file amended returns while others require that you file a paper return.
For example, California uses Schedule X. Other states do not. The Hawaii form, for example, is Schedule AMD.
Don’t forget to attach a copy of your amended federal return to your amended state return, if the state requires it, as is usually the case.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. With TurboTax you can be confident your taxes are done right, from simple to complex tax returns, no matter what your situation.
How Much Does It Cost To Amend A Tax Return
There are no charges or fees for filing Form 1040X for amended returnsthe only expense is the postage fee when mailing the documents. So part of knowing how to amend taxes includes you printing out the form, signing it, and sending it via post. But if it turns out that you owe money to the IRS, youll need to pay interest and late fees on the money you owe.
|NOTE:If you receive an advanced premium tax credit through the marketplace, you must file Form 8962. If you dont know how to do this, you can use high-quality business tax software to guide you through the process.|
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How Do I Fix My Tax Return If It Gets Rejected
If the IRS computers look at your return and something just doesnt add up, your tax return gets rejected. The issue could be as simple as a typo in a Social Security Number or an address.
The good news is that you can simply file your taxes againno amended return process needed. Just log back into 1040.com to see which part of your return needs to be fixed, make the change, and refile .
Here are a few of the most common errors:
- A name doesnt match Social Security records
- An address was entered incorrectly
- An Employer Identification Number was entered incorrectly
- A date of birth was entered incorrectly
- A child was already claimed on someone elses return
- Using the married filing separately status in a community property state AZ, CA, ID, LA, NM, NV, TX, WA, or WI which is not allowed
- An incorrect number was used to identify yourself to the IRS, such as an incorrect prior-year AGI or Employer Identification Number
Amending Your Income Tax Return
What if you’ve sent in your income tax return and then discover you made a mistake? You can make things right by filing an amended tax return using Form 1040-X. You can make changes to a tax return to capture a tax break you missed the first time around or to correct an error that might increase your tax.
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How To Claim A Refund If Youve Made A Mistake
If youve paid too much tax because you made a mistake on your tax return, youll need to make any amendments within the first year of filing it.
You wont have to pay a penalty if youve taken reasonable care to fill out your tax return correctly. However, HMRC can issue penalties if youve understated tax or misrepresented your tax liability because youve been careless.
Gov.uk explains how penalties are calculated:
- if a penalty arises because of a lack of reasonable care, the penalty will be between 0 and 30 per cent of the extra tax due
- if the error is deliberate, the penalty will be between 20 and 70 per cent of the extra tax due
- if the error is deliberate and concealed, the penalty will be between 30 and 100 per cent of the extra tax due
Make sure you keep on top of bookkeeping for your business or hire an accountant if youre not sure of anything.
How Do I File An Amended Return
Form 1040-X can be filed by mail or electronically, in certain cases. To prepare your amended return, you will need:
- A copy of your original tax return that you want to fix
- Explanation for why you are amending your tax return
Make sure that your W-2s, forms, and schedules are for the same tax year as your tax return.
If your amended return indicates that you owe more taxes, you should pay your taxes as soon as possible to limit interest and penalty charges. You can pay your taxes online directly from your bank account for free using IRS Direct Pay.
Filing by mail:
Helpful tips if you are filing by mail:
- You do not need to submit your original tax return with your amended return. This is for your reference only.
- If you are amending more than one tax return, you will need to file a separate Form 1040-X for each tax return you are amending. You will need to mail each form in a separate envelope.
- Unlike filing electronically, you DO NOT need to submit new forms and schedules for your entire tax return. Only submit new forms and schedules that you have made changes to.
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When Do You Need To File
You normally need to file your amended return within three years from the date you filed your original return or two years from the date you paid any tax due, whichever is later. And, if you filed your original return before the due date, its considered filed on the due date.
Some special due date rules apply in certain situationslike those related to bad debts and net operating losses, so always check the instructions.
How Long Will It Take For The Changes To Be Made
- If you submitted your request online, your change request will take about two weeks to be processed.
- If you submitted your request by mail, your change request will take longer. Due to COVID-19, the CRA may take 10 to 12 weeks to process paper adjustments.
Keep in mind that some adjustment requests are considered complex and may take longer to process. Complex requests include situations where additional information or review is required.
For more information on processing times, go to Service Standards in the CRA.
Online or by mail, you can request an adjustment for any of the 10 previous calendar years. For example, a request made in 2021 must relate to 2011 or a later tax year. Adjustment requests for different years should be on different forms but they can be mailed in together or submitted to the CRA at the same time.
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List The Reasons For Filing The Amendment On The Form
- Additional schedules and forms: In some cases, when filing for an amendment, you must use Form 8949 to report incomefromsales and exchanges of capital assets that you previously forgot to include on your return. Schedule D often accompanies this form, which is used to report capital gains or losses.
- Filling out Form 1040X: The form has three columns: column A, column B, and column C. In column A, the number from the original tax return is entered, while the amended number is entered in column C. The difference between the two columns is recorded in column B, resulting in a balance due, tax refund, or no tax change.
If youre unsure as to how to amend taxes already filed, the 1040X form comes with instructions that guide you through the process of filling out the form and exactly where to send it. The taxpayer also needs to list all the changes made to the return. The year for which you are amending the return also needs to be prominently featured on the form. How far back can you amend tax returns? Three years.
How Long Do You Have To File An Amended Return
- If you or the IRS changes your federal return, you must file an amended Virginia return within one year of the final IRS determination.
- If you file an amended return with any other state that affects your Virginia income tax, you must file an amended Virginia return within one year.
Interest on any amount due will still accrue from the original due date, so file the corrected return as soon as you can.
If Changes to Your Return Result in a Refund
We can only issue a refund if the amended return is filed within:
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You Received New Information Or Made A Mistake
If you do freelance work for several companies, it can be easy to miss a Form 1099 or receive some tax forms after you file. Or you may receive a revised 1099 from a brokerage firm or company you work with, or an adjusted Schedule K-1 reporting partnership income after you file your return. In all of those cases, you may need to file an amended return to correct the information after you file your return.
The IRS usually receives copies of these forms, too, and will send you a notice if the information doesn’t match up with your return. If you find a tax document after you file, you may want to amend, says Morris Armstrong, a registered investment advisor in Cheshire, Connecticut. The IRS does use a matching system, and if they find that issuing income document, they will send you a notice with the additional tax, interest and penalties, if any.”
Another common mistake Armstrong sees is when people neglect to file Form 8889 reporting eligible distributions from a health savings account. Without this form, the IRS may assume the withdrawals were subject to taxes and penalties. The IRS will add this back to your income, plus a 20 percent penalty, and have no idea that you spent the money for legitimate expenses, he says. The IRS prepares the bill based only on the information given. Don’t blindly pay.
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Amending Special Taxes And Fees Returns For Motor Fuels Cigarette Manufacturers And Distributors:
Motor Fuels Electronic Filing Program
There are two options to correct or amend a return that you already submitted.
Within the same business day as your original submission, and we will cancel your original submission. You may then submit the new tax form when you have made the corrections or amendments. Please note that the original submission will not be considered a valid filing and applicable due dates will apply to your new file submission. *The subject line of the email should be: , Amended Filing Notification for XXXX Period.
After the business day of your original submission, submit your corrected or amended file as if were an original. The electronic file maps for each file format provide coding options for submitting correcting or amending files, but the CDTFA does not utilize these coding options at this time. Once you have successfully submitted the corrected or amended file, with the following information: date of submission, tracking number, account number, period, and reason for/summary of the correction or amendments
Cigarette Manufacturers and Distributors Electronic Filing Program To amend a return online, select “Amend a prior eFiled Report”. Include all transactions previously reported and amendments.
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Tips For Taxpayers Who Need To File An Amended Tax Return
IRS Tax Tip 2020-114, September 3, 2020
The IRS will correct common errors during processing. However, there are certain situations in which a taxpayer may need to file an amended return to make a correction. Taxpayers can now file amended returns electronically. Here are some tips for anyone who discovered they made a mistake or forgot to include something on their tax return.
Use the Interactive Tax Assistant. Taxpayers can use the Should I file an amended return? to help determine if they should file an amended tax return.
Don’t amend for math errors or missing forms. Taxpayers generally don’t need to file an amended return to correct math errors on their original return. The IRS may correct math or clerical errors on a return and may accept it even if the taxpayer forgot to attach certain tax forms or schedules. The IRS will mail a letter to the taxpayer, if necessary, requesting additional information.
Wait until receiving refund for tax year 2019 before filing. Taxpayers who are due refunds from their original tax year 2019 tax return should wait for the IRS to process the return and they receive the refund before filing Form 1040-X to claim an additional refund.
Pay additional tax. Taxpayers who will owe more tax should file Form 1040-X and pay the tax as soon as possible to avoid penalties and interest. They should consider using IRS Direct Pay to pay any tax directly from a checking or savings account for free.