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Senate OKs Barrett bill maintaining tax relief for disabled veterans

‘We must do all we can to assist these veterans, who have made incredible sacrifices’

LANSING, Mich. — The state Senate Tuesday unanimously passed a measure sponsored by Sen. Tom Barrett to allow some disabled veterans to continue to deduct their student loans.

Senate Bill 25 would allow totally and permanently disabled veterans to continue to deduct the amount of their student loans from their taxable income after the federal requirement allowing the practice ends.

“Qualifying disabled veterans currently are able to have their federal student loan debt discharged and their obligation to repay the loan cancelled,” said Barrett, R-Charlotte. “Because the amount of the discharged loan is not included in an eligible veteran’s adjusted gross income, the value of the loan is not subject to income tax.

“Unfortunately, because Michigan uses the federally determined AGI for the purpose of assessing taxable income, qualifying veterans are still required to pay income tax on the amount of the loan beginning in 2026.”

Under federal law, discharged student loan debt is not currently taxed at the state level. SB 25 would continue this practice by requiring the state to allow eligible veterans to deduct the amount of the discharged loan from their AGI provided it was not excluded at the federal level.

“Veterans who are totally and permanently disabled have made an incredible sacrifice for our freedom at great cost to themselves,” Barrett said. “We must do all we can to assist them. This is the least we can do.”

Barrett said his measure also retroactively applies to discharged loans taxed in 2017 (before the federal provision took effect) and would apply to 2016 as well if it is signed before April 15.

SB 25 now heads to the Michigan House for further consideration.