IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

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Bronx Bum
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IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Bronx Bum » Thu Oct 17, 2013 1:43 pm

I have no basis for this. Just my common sense. Sure, there's bipartisan support. So what. Supporting something and making a move to get it done are two different things.

The government will need money then more than ever. Why would they let people get off free like that?

I'm scared because if the 25 year mark is coming and I have a family and they're going to take our house away to pay this $200k tax, I might as well jump off the Verrazano.

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redsox
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby redsox » Thu Oct 17, 2013 1:58 pm

What's the fix? I don't see why loan forgiveness shouldn't be a taxable event.

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Bronx Bum
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Bronx Bum » Thu Oct 17, 2013 2:04 pm

redsox wrote:What's the fix? I don't see why loan forgiveness shouldn't be a taxable event.


Alright brother! Thank you for your opinion!

andythefir
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby andythefir » Thu Oct 17, 2013 2:06 pm

It seems to me the teeth of the problem come out with the exploding principal due to the interest. It's my understanding that the remaining balance gets counted as a 1-time income. To owe $200k on a 1-time income, that income would have to be gigantic (>$400k), which is very possible after 25 years of not covering interest. A policy middle ground could be capping the interest, like PAYE does for the 1st 3 years.

Still, there has been a lot of rumbling about student loan burdens, especially from Democrats. And changing/getting rid of the tax bomb would be huge practically for some students, but looks more like an accounting trick to the average voter. Not to mention when the average TLS user is 25 years out of school the most important political demographics will have lots of sympathy to student loan payers.

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redsox
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby redsox » Thu Oct 17, 2013 2:15 pm

Seriously, I want to know what the fix is. Are you just saying you want the government to use my tax money to pay off your loans and not consider that gift a taxable event?

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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby paintbynumbers » Thu Oct 17, 2013 2:33 pm

Talked to a congressman on the House education committee and said this will be fixed by the time the first person will have to face this problem.

Though not a putting a lot of faith in Congress bc they suck at life.

I think a solution is to spread out the tax bomb over a couple years. 3-5 years. Even if you owe 200K after forgiveness bc of interest that is about 60K spread over 3-5 years. 1K/month

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Bronx Bum
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Bronx Bum » Thu Oct 17, 2013 2:36 pm

redsox wrote:Seriously, I want to know what the fix is. Are you just saying you want the government to use my tax money to pay off your loans and not consider that gift a taxable event?



Of course I want that! I want a million dollars too! But this thread isn't about what I want. I want to be 6'4! It's about whether or not the government will change the tax bomb law.

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redsox
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby redsox » Thu Oct 17, 2013 2:43 pm

Bronx Bum wrote:Of course I want that! I want a million dollars too! But this thread isn't about what I want. I want to be 6'4! It's about whether or not the government will change the tax bomb law.


It'll get changed. Was just curious about what sort of change was being suggested. A better way to do the whole thing might be to come up with a repayment plan that would actually pay off the loans in 20 years, have the borrower continue to pay the same amount they would pay with IBR/PAYE as it is, have the government pay the rest, and tax the borrower on the government payment every year.

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Bronx Bum
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Bronx Bum » Thu Oct 17, 2013 2:48 pm

redsox wrote:
Bronx Bum wrote:Of course I want that! I want a million dollars too! But this thread isn't about what I want. I want to be 6'4! It's about whether or not the government will change the tax bomb law.


It'll get changed. Was just curious about what sort of change was being suggested. A better way to do the whole thing might be to come up with a repayment plan that would actually pay off the loans in 20 years, have the borrower continue to pay the same amount they would pay with IBR/PAYE as it is, have the government pay the rest, and tax the borrower on the government payment every year.


I'd be fine with that man. I'd be fine with paying 15% until the day I die too. I'm more scared of the TAX BOMB instant payment of $200k.

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redsox
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby redsox » Thu Oct 17, 2013 3:08 pm

Bronx Bum wrote:I'd be fine with that man. I'd be fine with paying 15% until the day I die too. I'm more scared of the TAX BOMB instant payment of $200k.


Well, the way I see it, you have two options, a) do nothing and hope the government will fix it or b) save a few thousand dollars a year to cover the "tax bomb." Not saying that's easy to do, but $5k a year would probably do it, and IBR/PAYE is still a pretty good deal even if you include that cost.

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Tanicius
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Tanicius » Thu Oct 17, 2013 3:12 pm

FOR ALL PUBLIC INTEREST PEOPLE, REST ASSURED: THIS DOES NOT APPLY TO YOU.

See: Question and Answer #3 on Page 1.

paintbynumbers
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby paintbynumbers » Thu Oct 17, 2013 3:39 pm

Always figured it did. All the more reasons to work for federal, state, or local gov't

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Bronx Bum
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Bronx Bum » Thu Oct 17, 2013 3:45 pm

CHRIST ALMIGHTY BROS. What should I do? Should I leave my job and just try to get a government job? Do DA offices hire laterals?

andythefir
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby andythefir » Thu Oct 17, 2013 3:51 pm

Bronx Bum wrote:CHRIST ALMIGHTY BROS. What should I do? Should I leave my job and just try to get a government job? Do DA offices hire laterals?


Probably not. If you are on IBR you have 25 years to get 120 payments in. Lots of government jobs have minimum experience required, just like firm jobs. If you have a job now, it seems to me to make the most sense to stick it out for 3-5 years then jump ship.

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A. Nony Mouse
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby A. Nony Mouse » Thu Oct 17, 2013 3:52 pm

I guess I don't understand why you're freaking out so much now about something that might happen 25 years from now. Personally, I think they will pass a fix (because if people do end up facing such a big tax bomb, they're not going to be able to pay it, and the government knows it can't get blood from a stone, so it's better to work out an alternative). But even if they don't, you've got 25 years to plan for this. If you can buy a house (that you're worried the IRS will take), presumably you can plan for the tax bomb, either by paying off more of the debt or saving to pay the tax. If you really can't pay enough over the next 25 years that you end up facing a $200K tax bill, the IRS is not going to expect it in one lump sum from you. They'll work with you. Also, hire a financial planner to figure out a plan.

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Tanicius
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Tanicius » Thu Oct 17, 2013 4:01 pm

If you're interested in DA work and have any litigation experience at your firm, you should be able to find work at a DA office somewhere eventually.

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cinephile
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby cinephile » Thu Oct 17, 2013 4:22 pm

We can always just file for bankruptcy when the tax bomb comes, assuming we have no assets. Other than retirement savings, which I believe you can protect. And maybe your primary residence? I don't know, I never studied bankruptcy

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Tiago Splitter
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Tiago Splitter » Thu Oct 17, 2013 4:53 pm

A. Nony Mouse wrote:the IRS is not going to expect it in one lump sum from you. They'll work with you. Also, hire a financial planner to figure out a plan.

This is worth repeating. If your only asset is your house and some minimal savings 25 years from now the IRS will just put you on a payment plan.

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mr. wednesday
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby mr. wednesday » Thu Oct 17, 2013 4:59 pm

If congress doesn't do something about the tax issue, whether it's get rid of it or spread it out or cap it or whatever, in 25 years from 2007 when this happens, I guarantee the IRS will have payment plans as a standard operating procedure for this. There will be enough people who couldn't pay off their loans in 25 years and don't have the assets to pay a huge tax bill for them to come up with a plan and let the public know about it.

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kay2016
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby kay2016 » Thu Oct 17, 2013 7:09 pm

Tanicius wrote:FOR ALL PUBLIC INTEREST PEOPLE, REST ASSURED: THIS DOES NOT APPLY TO YOU.

See: Question and Answer #3 on Page 1.



Phew.

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altoid99
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby altoid99 » Tue Dec 17, 2013 10:43 pm

Someone correct me if I'm wrong on this, but wouldn't it be more wise for someone who owes a ton of student loan debt (250K+) just to keep paying interest for 20-25 years and then get hit by the tax bomb at the end? Since the forgiven amount is considered taxable income, they'll end up only paying for a portion of it instead of trying to pay it all off during repayment.

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Tiago Splitter
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Re: IBR/PAYE people, I doubt they'll get rid of the TAX BOMB

Postby Tiago Splitter » Tue Dec 17, 2013 11:01 pm

altoid99 wrote:Someone correct me if I'm wrong on this, but wouldn't it be more wise for someone who owes a ton of student loan debt (250K+) just to keep paying interest for 20-25 years and then get hit by the tax bomb at the end? Since the forgiven amount is considered taxable income, they'll end up only paying for a portion of it instead of trying to pay it all off during repayment.

If you pay only interest on 250k debt, assuming a 7.5% interest rate, you'll pay about 350k over 20 years. If you pay the loan off over 20 years you'll pay a total of 483k. So yeah if you plan to take the entire 20 years to pay it off you'll come out somewhere around break even depending on where your tax rate falls in 20 years. But if you pay that same loan off over just ten years, you'll pay a total of 356k. Over seven years? 322k. Five years? 300k. So if you can afford it, you'll pay a lot less (at least in nominal dollars) if you just pay it off as fast as possible.




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