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If you’re one of the millions of Americans expecting student loan forgiveness, you won’t owe federal taxes. But that doesn’t mean you’re off the hook at the state level.
Indiana is the latest to confirm forgiveness will trigger state income taxes, and some borrowers may owe county levies on top of state income tax.
“As this law is clearly defined, there is no need for additional administrative rules,” a spokesperson with Indiana’s Department of Revenue said. “Any legislative change must come from the general assembly.”
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A provision from the American Rescue Plan of 2021 makes student loan forgiveness federally tax-free through 2025, and state income taxes depend on whether and when there’s state conformity with federal tax laws.
Last week, Mississippi’s Department of Revenue confirmed with CNBC that student loan forgiveness will be taxable, and the North Carolina Department of Revenue shared the same in a press release.
Of course, with state legislation in flux, it’s still possible these tax policies, among others, may change.
Taxation is possible in other states
In addition to Indiana, Mississippi and North Carolina, state-level taxation also may be possible in Arkansas, California, Minnesota and Wisconsin, according to a preliminary analysis from the Tax Foundation.
The organization initially estimated that 13 states may tax student loan forgiveness and has revised projections with updates.
It now projects seven states — Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin — may tax student loan forgiveness.
Taxing forgiveness isn’t likely in Massachusetts, but the state hasn’t shared an official determination.
Currently, here’s a breakdown of the status in pending states.
Arkansas: Likely taxable
Although the Arkansas Department of Finance and Administration hasn’t issued a formal decision, a determination may arrive in the coming days, a spokesperson told CNBC.
However, the state doesn’t conform to the federal code “in any significant way,” according to the Tax Foundation, making forgiven student debt likely to be taxable without state action.
California: Possibly taxable
California may also tax student loan forgiveness, depending on how the Department of Education administers the program, a spokesperson from the state’s Franchise Tax Board told CNBC.
Massachusetts: Likely not taxable
While the Massachusetts Department of Revenue hasn’t made a final determination, state Rep. Steve Owens, a Democrat, said in a tweet that student loan forgiveness won’t be taxable.
What’s more, the state has already issued guidance on conforming to the American Rescue Plan’s exclusion, Owens said in a separate tweet.
Mississippi: Taxable
The Mississippi Department of Revenue has confirmed with CNBC that student loan forgiveness will be taxable at the state level.
North Carolina: Taxable
Student loan forgiveness is “currently considered taxable income,” according to a press release from the North Carolina Department of Revenue. However, the department is monitoring legislation changes from the state’s General Assembly.
Wisconsin: Possibly taxable
With the state tax law conforming before the American Rescue Plan Act, it’s possible Wisconsin may tax student loan forgiveness, according to the Tax Foundation.
Tax-free forgiveness will require a statutory change and action from the state legislature, a spokesperson for the Wisconsin Department of Revenue told CNBC.
“We will certainly address this discrepancy with federal law in our upcoming biennial budget request in an effort to ensure Wisconsin taxpayers don’t face penalties and increased taxes for having their loans forgiven,” they said.
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