Student Debt Forgiveness May Be Taxable in More Than a Dozen States
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The billions in student loan debt forgiveness announced by the Biden Administration will be exempt from federal taxation but could be taxable at the state level in more than a dozen states—a hiccup many states are expected to quickly handle.
Legislatures and state revenue departments are comparing their tax codes against President Joe Biden’s plan, announced Wednesday, to cancel $10,000 in student loan debt for those earning $125,000 or less and up to $20,000 in debt for Pell Grant recipients. While discharge of indebtedness is generally considered taxable income, the American Rescue Plan Act specified the forgiveness of student loan debt between 2021 and 2025 doesn’t count toward federal taxable income.