State Taxes And Student Loan Forgiveness

While many types of student loan forgiveness are tax-free federally, several states may levy taxes on student loan forgiveness.

Even though some popular programs like Public Service Loan Forgiveness (PSLF) are tax free federally, every state has a different law regarding state taxes on loan forgiveness.

The American Rescue Plan Act of 2021 added an exclusion from income on federal income tax returns for student loan forgiveness through December 31, 2025 - meaning all types of student loan forgiveness is tax free on the federal level.

But what about state policies for taxing student loan forgiveness? Some states provide tax-free status for student loan forgiveness and some do not. This could be an unexpected tax bomb waiting for some Americans.