Following the student loan forgiveness measure that is going into effect right now- many ask whether or not that $10,000 / $20,000 payment will be taxed. In some states no, but in some states yes. Here’s the list:
YES: the payment will be taxed if you live in Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina or Wisconsin.
According to Jared Walczak, vice president of state projects for the Tax Foundation, state and federal governments have historically taxed debt forgiveness.
Congress added an exemption for student loans discharged through 2025 in the 2021 American Rescue Plan Act. Not all states have since changed their tax laws to align with federal policy, leading to a variety of approaches in how to handle student loan relief.
For now, if you live in one of the 7 states that are not part of the exemption, be sure to set aside money for Uncle Sam. How much a person could owe in state taxes depends on total income, their state’s tax rates and other factors. Experts expect the loans to result in a couple hundred dollars more in taxes.