A military veteran, who was injured fighting for our country thought he was getting a break when his student loans were forgiven. Unfortunately, that didn't last long. Now, what happened is that the IRS came calling for its share.
The IRS considers forgiven debt as income and it doesn't care about the circumstances. The federal IRS will put a tax on that income. The state also treats canceled debt as income and will also tax. After hearing the story from a disabled veteran, Senator Rick Jones (R) Grand Ledge, introduced a bill Wednesday that would handle the problem on the state level. He will also be working with a congressman to take care of the federal problem.
This bill started with one disabled Afghanistan veteran, Will Milzarski talking with Sen. Jones about his high-income taxes on his loans. Milzarski took out $165, 000 on student loans, and when he was active in the military he didn't have to pay back the loan, but the interest would accrue. That interest raised his bill to $233,000. He medically retired in 2014, and in 2015 he applied through the U.S. Department of Education to have his loans forgiven. In 2016 his loans had been forgiven. And then he found out the IRS was going to tax him for that forgiveness.
Milzarski said, "It feels horrible on one hand part of the federal government said 'hey you did your duty, you served the country, you got messed up you, and you bled for the country, now here's all your student loans forgiven.'" Sen. Jones agrees with Milzarski and said,"Then the other hand to the federal government said, wait a minute we are going to take this back."
The IRS stuck him with a $62,000 tax bill and he owes another $9,000 to the state. Sen. Jones said that for a veteran to come back to this country and pay that much in income tax isn't right. "$70,000 dollars immediately in paid taxes. Its the definition of insanity" he said.
Milzarski said the IRS is threatening to put a lien on his home and vehicles, and go after his disability checks. And if he has to pay it back in full, he said will force him to make some major changes
"It's very stressful, for the next two years I have no idea where we are going to be financial, I might have to turn off cable, turn of cell phones," said Milzarski.
Senator Rick Jones's bill can't keep the IRS off his back, but it would change the law so vets who have student loans forgiven won't have to pay state taxes.
"So this can have an effect on a number of veterans that's served our country and become disabled...and it's certainly no way to treat a veteran," said Sen. Jones.
This bill would have saved Milzarski the $9,000 he owes the state. And in the meantime, he's working with Michigan State University to appeal the federal debt.
