Need Help With Paying Off Student Loan While Divorcing?
My previous blogpost talked about an opportunity to get an extra $250-$500 in your child’s 529 courtesy of the State of Maryland. The deadline for applying to that program, “Save4College State Contribution Program.”, was May 31, 2019. If you missed the opportunity to participate this year, set a reminder for next year!
Divorce is expensive, and individuals with significant student loan debt feel the financial pressure from all directions. For many, a divorce means supporting two households on the same income that previously supported just one. It can also significantly change what you are paying in taxes. The State of Maryland has another opportunity to up your tax return in 2019.
If you have student loan debt, find out if you qualify for the Maryland Student Loan Debt Relief Tax Credit. You can check the Maryland Higher Education Commission website to see if you qualify for the Student Loan Debt Relief Tax Credit. The application period opens on July 1, 2019 and runs through September 15, 2019. If you qualify you could get up to a $5,000 tax credit on your Maryland State return. If you owe less than the credit, you’ll get a tax refund in the amount of the difference (i.e. if you owe the State $500 in taxes, you will get a $4,500 refund on your state taxes).
This credit has some pretty specific requirements so visit their website to see if you qualify, and consult with a tax professional to determine if this credit is your best option. Generally you need to have incurred at least $20,000 in undergraduate and/or graduate student loan debt, and still owe at least $5,000 on that debt when applying for the tax credit. You then have to submit your application to the Maryland Higher Education Commission by September 15, 2019. Don’t wait until the last minute to get this one in – you need to submit your loan information, college transcript(s) and your income tax information with the application. Give yourself some time to get everything together.
If you receive the credit you then must show that you repaid the amount of the credit in student loan payments within two years. If you fail to do this and/or submit proof of this, there will be a recapture of the credit back to the State. So if you receive a $500 credit, you must submit proof that you made at least $500 in payments to pay down the balance of the student loan debt. The only “proof” needed is a copy of a transaction log, listing the borrower and lender, that shows the amount paid to the lender. This last step can be easy to miss – just to be safe set yourself a reminder (or a couple) to mail it in. If you have questions about this program you should consult with a tax professional.
IMPORTANT NOTICE: Any discussion in this blog concerning tax or legal considerations is for information purposes only and not intended to serve as a formal tax opinion or otherwise as tax or legal advice.