Those College Kids Celebrating Student Loan Forgiveness May Be in for Nasty Tax Bill on April 15 in 7 States

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Americans who thought student loan forgiveness was a tax-free windfall might have to think again, depending upon where they live.

The American Rescue Plan ensures that no federal tax liability accrues for any loan forgiveness between 2021 and 2025. The same is not true of all states, or of counties that have an income tax, according to CNBC. That could trigger an issue for former students who are getting out of paying back up to either $10,000 or $20,000 in student loans.

The Tax Foundation offered a list of seven states that are likely places where the loan forgiveness could be treated as taxable income. It initially estimated 13 states might tax the loan forgiveness as revenue.

The latest list includes Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin, noting in its report that laws could change and that regardless of where they live, anyone impacted by loan forgiveness should investigate the laws in their state.

California state Assembly Speaker Anthony Rendon and Senate President Pro Tem Toni Atkins recently vowed that California would pass legislation to waive state taxes on the loan forgiveness in 2023.

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“Once the federal government finalizes details of the student debt relief program, we will know whether the relief is tax exempt under current California law,” Senate President Pro Tempore Toni Atkins and Assembly Speaker Anthony Rendon said in a joint statement Sept. 9, according to the Longview News-Journal. “If not, we will make the relief tax exempt through immediate action in early 2023.

“Rest assured, one way or another, California will not tax the federal student debt relief.”

In its report, CNBC said that for now, Indiana residents would owe a state and possibly a county tax.

“As this law is clearly defined, there is no need for additional administrative rules,” a representative of Indiana’s Department of Revenue told CNBC. “Any legislative change must come from the General Assembly.”

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Scott Hardin, a representative of the Arkansas Department of…


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