At Glass Jacobson, our tax preparation team is always looking for ways to save our clients money. If you live in Maryland, you may not be aware of the student debt relief tax credit. Maryland taxpayers who have acquired a minimum of $20,000 in student loan debt, with $5,000 or more still outstanding, may qualify for this student loan forgiveness program from the state government.
The student loan forgiveness program
The Maryland Student Loan Debt Relief Tax Credit was established in 2017 to help graduate and undergraduate students pay down their debt. Students who attend institutions outside of Maryland are eligible for the student loan forgiveness program as long as they file a Maryland tax return.
The Maryland Higher Education Commission (MHEC) administers the program and will begin accepting applications for 2019 tax credits on July 1st, 2019. Applicants must submit their official college transcripts, proof of educational loans, and a copy of their most recent Maryland income tax return. All applications must be submitted by September 15th.
The MHEC has $5 million to grant every year, and any one student can receive up to $5,000. Obviously, this will translate into at least 1,000 approved applications. In previous years, the MHEC has approved more than a thousand applications at an average tax credit of around $1,000.
The fine print
To qualify under Maryland’s tax credit program, the loan must be in the student’s name. Loans taken out by parents, such as PLUS loans, do not count towards the minimum levels of student debt.
The state government prioritizes applications from students who graduated from a college inside Maryland; those who have never received the tax credit; and students who were eligible for in-state tuition in Maryland. Applicants who have high debt-burden-to-income ratios are also prioritized. Students meeting all four criteria are likely to receive larger tax credits.
100% of the tax credit must be used to pay down student debt. Students have two years to submit proof to the MHEC that they used their tax credits to reduce their loan balances. Payments can be made either as installments or one-time payments. If written proof isn’t submitted to the MHEC, the agency will recapture the tax credit.
If you need help maximizing your state tax benefits, contact Glass Jacobson today.