List of States That Might Tax Student Loan Debt Cancellation Dwindles

[question everything]

President Biden’s announcement of student loan debt forgiveness is already raising many questions. How much will it cost? Who will benefit the most? How will it contribute to inflation? Does the president even have the legal authority to implement this loan forgiveness?

Here’s one more question to add to the mix: will states consider student loan forgiveness a taxable event? In some states, the answer could be yes.

As a general rule, a discharge of indebtedness counts as income and is taxable, as my colleague Will McBride explains. Under § 9675 of the American Rescue Plan Act (ARPA), however, the forgiveness of student loan debt between 2021 and 2025 does not count toward federal taxable income. States which follow the federal treatment here will likewise exclude debt forgiveness from their own state income tax bases. But, for a variety of reasons, not every state does that. There are at least six relevant interactions with the Internal Revenue Code (IRC) for purposes of the treatment of student loan debt cancellation. States could:

1. Conform to the current version of the IRC with ARPA (exempt)

2. Conform to the current version of the IRC but decouple from ARPA (taxable)

3. Not fully conform to the current IRC but bring in the relevant ARPA provision (exempt)

4. Not fully conform to the current IRC but separately exclude student debt cancellation (exempt)

5. Conform to a pre-ARPA version of the IRC (taxable)

6. Selectively conform to the IRC or adopt independent definition of income (taxable)

The following shows a smaller list of states that, after pronouncements from state officials, still appear to be on track to tax student loan debt forgiveness.

Arkansas

Minnesota

Mississippi

North Carolina

Wisconsin

https://taxfoundation.org/student-loan-debt-cancelation-tax-treatment/

[Biophilic]

1. Only the finest states. Good grief.