These 7 States Will Tax Student Loan Forgiveness - Lifestyle UG These 7 States Will Tax Student Loan Forgiveness - Lifestyle UG

These 7 States Will Tax Student Loan Forgiveness

President Biden's plan to cancel a lot of student loans won't be taxed by the federal government, but borrowers in seven states may have to pay state income tax on all those canceled loans.

Before 2021, getting rid of student debt was usually seen as a form of income and was taxed at both the federal and, in most cases. But the American Rescue Plan changed that in March 2021.

The Biden administration's new debt-cancellation proposal makes this government exemption a major thing. Because most states follow the federal government's example on income tax.

Seven states have declared they will tax debt relief or have regulations that might mandate it, pending a change in state law. States where borrowers may be taxed for loan cancellation are:

In a statement to NPR, the North Carolina Department of Revenue says that the state's General Assembly decided not to adopt the federal student debt tax exemption.

1. North Carolina

Like North Carolina, Indiana usually follows federal tax policy but occasionally defied Congress. Tax officials there told the AP that residents must include debt relief as taxable income.

2. Indiana

Now things are getting harder. Mississippi doesn't follow federal tax policy like most states do, so the changes in the American Rescue Plan don't mean much there.

3. Mississippi

Any states replicate federal tax policies, but Minnesota is outdated. It's consistent with government policy before the American Rescue Plan when debt relief was taxable.

4. Minnesota 

Like Minnesota, Wisconsin follows old federal tax legislation from 2020, right before ARPA exempted student debt relief.They might still exclude student debt relief from state taxes.

5. Wisconsin

It's likely this Democratic stronghold might charge millions of Californians who qualify for Biden's debt relief plan because the state complies to federal tax regulations from 2015.

6. California

Like Mississippi, Arkansas doesn't follow federal tax rules, therefore debt relief is taxable. But Arkansas hasn't indicated if it would tax cancelled loans.

7. Arkansas