Some States Could Tax Forgiven Student Loan Debt
Graduates celebrate at California State University of Los Angelesâ€™ commencement ceremony in May. Several states have said theyâ€™ll levy income taxes on the student loan forgiveness announced by President Joe Biden. Ringo Chiu/The Associated Press
Indiana will apply state income taxes to federally forgiven student loans, joining North Carolina and Mississippi, diminishing the benefit to borrowers who live in those states. A handful of other state revenue agencies are considering doing the same.
While President Joe Biden’s order last month forgiving student loan debt explicitly referenced law excluding the amounts from federal income tax, some states are not as magnanimous.
Some states conform their tax codes to the federal tax statutes, and others do not. That may make a difference in how they deal with the income generated by loan forgiveness.
The amount of taxes borrowers will owe in the states that decide to levy them will vary, depending on the size of the forgiven loan and the tax bracket in which the borrower falls.
The Indiana Department of Revenue confirmed in an email to the Associated Press that the loan forgiveness amounts must be reported as taxable income. Those who receive ,000 in loan forgiveness could owe about in Indiana income taxes, while Pell Grant beneficiaries’ tax bill could be about , according to the department.
The North Carolina Department of Revenue issued a news release saying that the state had not adopted the same standards that the federal government did in excluding the loan forgiveness amounts from taxes. “Therefore, student loan forgiveness excluded pursuant to [the federal revenue code] is currently considered taxable income in North Carolina,” it said in the release.
The Mississippi Department of Revenue confirmed to Bloomberg News that it, too, would tax the forgiven loans. The department did not elaborate, but Mississippi Gov. Tate Reeves, a Republican, tweeted his apparent displeasure with the loan forgiveness altogether. He tweeted that “welders, plumbers, laborers and other Mississippians … will be forced to pay off the debts of Harvard doctorate degree gender studies majors living in California.”Top of Form
Three other states, Arkansas, Minnesota and Wisconsin, have statutory language that permits loan forgiveness to be treated as taxable income, but, according to the National Association of State Legislatures, they may change the statutes or make a decision that would keep the forgiven loans tax free.
Six states — Hawaii, Kentucky, New York, Massachusetts, Pennsylvania, and Virginia — have stated they will not tax the forgiven loans, the association said in a compilation forwarded to Stateline.
A spokesperson for the Arkansas Department of Finance and Administration told Fortune magazine that officials are reviewing state law to see whether they can collect taxes on the forgiven loan amounts.
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