President Biden’s administration has succeeded in forgiving student loan debt over 5 million borrowersdespite recent legal roadblocks Save on a repayment plan for valuable education and that Debt relief proposal “Plan B”. have met.

The fate of student loan forgiveness remains unclear — especially during a Trump presidency. But if your student loan debt was wiped out last year, you might be tempted to pay taxes on your forgiven debt.

Here’s everything you need to know about how student loans can affect your tax return.

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Will I have to pay taxes if my student loan debt is forgiven?

It depends on where you live.

Education debt relief is usually taxed as income, so any loan amount forgiven is added to your adjusted gross income: If you earn $50,000 and have written off $20,000 in loans, your adjusted income that year is $70,000. But thanks to a provision tucked in American rescue planfederal taxes on student debt forgiveness are eliminated through 2025. So no one will owe federal taxes on student loan forgiveness next tax season.
However, you may have to pay state or local taxes for that relief.

States That Tax Student Loan Debt Relief

Most states are compliant with the federal tax system, meaning they follow the lead of the IRS in terms of tax rules. Since the federal government doesn’t currently tax student loan relief, these states won’t either.
But there are 13 states that do not follow federal guidelines. Of these, five states tax student loan forgiveness: Arkansas, Indiana, Mississippi, North Carolina and Wisconsin. Here are the rules and exceptions for each state, and how much you may owe.

Please note that the calculations below do not include any tax deductions or credits you may be eligible for.

Arkansas

Arkansas has a graduated state income tax that ranges from 2% to 3.9%depending on how much you earn each year.

If you earned $50,000 in 2024 and had $10,000 in student loan forgiveness, for example, your taxable income would be $60,000. This would put you in the 3.9% tax bracket and would mean you would owe about $390 in state taxes on your student debt.

Indiana

Indiana residents are on the hook for paying both state and local taxes on forgiven debt. There are no exemptions for those enrolled in the Public Service Loan Forgiveness program.

Indiana has a flat tax rate of 3.05%. Local taxes vary by county.

If you received $10,000 in student loan forgiveness in 2024, you’d be on the hook for $305 in state taxes next year. If you live in Indianapolis (Marion County), you would also pay 2.02% in county income tax, or $202. This would bring your total tax to $507 for your forgiven debt.

Mississippi

Mississippi also has one progressive income tax. In 2024, you pay 0% on the first $10,000 you earn and 4.7% in state income tax on earnings above that. So if you earn $50,000 in 2024 and get $10,000 in student loans, you’d be taxed on $60,000 in total. You would actually owe $470 on your forgiven student loan debt.

North Carolina

If you received student loan forgiveness and live in North Carolina, you pay one flat state income tax of 4.5% on your canceled debt for 2024. That means you owe about $450 in taxes on your loan debt.

There are some exceptions to this tax law: Borrowers who are enrolled in Public Service Loan Forgiveness Program will not be taxed for forgiven loans in North Carolina.

Wisconsin

Student loans forgiven in 2024 are subject to Wisconsin state tax. However, there are some exceptions. If your loans were forgiven under the Public Loan Forgiveness Program, Teacher Loan Forgiveness Program, National Health Service Corps Loan Repayment Plan, or if you meet the qualifications for total and permanent disability, you will be exempt from this tax.

If you receive any other type of student loan forgiveness, you will be charged between 4.40% and 7.65% in state income taxes. If you earned $50,000 in 2024 and received $10,000 in loan forgiveness, you would be taxed at a 5.3% rate and would owe about $530 in student loan taxes. This can change if you are married and your spouse’s income pushes you into a lower or higher tax bracket.

How to pay taxes on your forgiven student loans

If you get student loan forgiveness, you get one Form 1099-C which shows the amount forgiven.

“That amount is tax-free on your federal income tax return and in all but the five states,” says Mark Kantrowitz, student loan expert and CNET expert review board member.

If you live in one of the five states that tax student loan relief as income, you’ll need to submit that form when you do your taxes, along with documents showing income you get from a job, for example.

You can do this on your own by using IRS Free File Toolbut many taxpayers are helped by software such as TurboTax (which was CNET’s top picks for tax declaration 2024) or authorized accountant.

What if I can’t afford the tax on my student debt?

Borrowers who cannot pay the taxes they owe may be eligible for an installment plan. This is an agreement with the IRS which allows you to pay the tax over a longer time frame.

However, keep in mind that there are different types of add-ons. An extension of archiving The deadline gives you more time to submit your tax paperwork, but does not extend the due date for payment. While an installment plan is a separate agreement that do extend the payment due date.

Kantrowitz also notes that if you’re considered insolvent — meaning your debts exceed your assets — you may be able to get your taxes forgiven.

If my student loans are forgiven in 2025, will I owe federal taxes?

No. All student loan cancellations are exempt from federal taxes through the end of 2025, according to Kantrowtitz. That means if your loans are forgiven in 2025, you won’t owe federal taxes.

Congress may decide to extend the exemption, but as it stands now, student debt relief will be federally taxed starting in the 2026 tax year.

More advice on student loans