Which states tax student loan forgiveness? There is no single official list, but most states that levy an income tax start from federal income, so forgiveness that is taxable federally in 2026 is usually taxable by those states too. States with no income tax do not tax it, and a few states have charted their own course, so always check your state revenue department.
Last reviewed: October 2026.
The question of which states tax student loan forgiveness became more urgent when the federal tax exclusion for most student loan discharges ended after December 31, 2025. Until then, the federal government treated most forgiven student debt as tax-free, and many states simply followed along. Now the state rules matter again. This guide explains the logic behind state treatment, what I could and could not verify as of October 2026, and a practical way to find your own answer.
Why state treatment depends on federal law
Most states with an income tax begin your state return with a federal figure, usually federal adjusted gross income. If canceled debt is included in your federal income, it usually flows into your state return unless the state subtracts it. The reverse is also true: if the federal law excludes the debt, the state typically excludes it, too.
That is why the federal change matters so much. According to the IRS, the exclusion for certain student loan discharges covers discharges after December 31, 2020 and before January 1, 2026. Discharges in 2026 and later are therefore generally taxable federally unless another exclusion applies, and states that follow federal law will often follow that outcome. The article from Capitol News Illinois, for example, described Illinois as one of about 20 states whose tax code automatically follows the federal change. See our Illinois guide for how that plays out in one state.
Which states tax student loan forgiveness: three groups of states
| Group | How student loan forgiveness is generally treated |
|---|---|
| States with no tax on wages (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming) | No state income tax on forgiven student loans |
| States that start from federal income and follow federal changes | Generally taxable when federally taxable, and tax-free when federally excluded |
| States that adopt their own rules, or follow the federal code as of a fixed date | Can differ from federal treatment, in either direction |
The third group is the hardest to generalize. A state that freezes its link to the federal code at a past date may not automatically pick up later federal changes, and a state legislature can pass its own exclusion or decide to tax.
What was reported about states during 2021 to 2025
While the federal exclusion was in effect, news reports and tax guides identified a handful of states that might tax the forgiveness anyway. A TaxAct article from October 2022, citing Tax Foundation data, listed Arkansas, Indiana, Minnesota, Mississippi, North Carolina and Wisconsin as states that were on track to tax discharged student loans unless they changed course, and said the list could change. A 2026 tax firm guide named Mississippi, North Carolina, Indiana, Wisconsin and Arkansas as states that taxed it despite the federal exemption, and said Pennsylvania excluded most forgiveness under its own law.
I could not verify the current status of each of these states against official state sources, and state laws change. Treat those lists as background only, not as advice about your 2026 return.
Which forgiveness types are most likely to be taxed
Even in a state that follows federal law, treatment varies by program. The IRS lists the following among amounts not treated as canceled debt income: certain loans cancelled for working in specified professions for a broad class of employers, cancellation due to death or total and permanent disability, and certain loan repayment assistance programs. The 2025 reconciliation law made the death and disability exclusion permanent for discharges after December 31, 2025, according to a tax practitioner summary.
- Most likely taxed in 2026: income-driven repayment forgiveness and some private loan settlements.
- Most likely not taxed: PSLF-type forgiveness, death and disability discharges, and discharges completed before 2026.
For the federal side, see is student loan forgiveness taxable, do you have to pay taxes and does it count as income.
Which states tax student loan forgiveness? How to check yours in five steps
- Find the state where you will be a resident when the discharge posts.
- Open your state revenue department website and search for “canceled debt,” “student loan forgiveness” or “discharge of indebtedness.”
- Read the instructions for your state return, which usually explain starting point, additions and subtractions.
- Look for recent legislative news, because states sometimes adopt exclusions late in the year.
- If the rule is unclear, call the department or ask a tax professional and keep a record of the answer.
California readers can start with our posts on California and whether forgiveness is taxable there.
What this means for you
- Learn which program forgives your loans and when the discharge is expected.
- Do the federal analysis first, because most states follow it.
- Check your state rule before the year of discharge so you can plan.
- Ask about the insolvency exclusion, which can reduce taxable canceled debt if your debts exceed your assets, as described in IRS guidance.
- Set aside money for the tax and save your discharge documents.
Scam warning: No company can legally erase your tax bill for an upfront fee. Use studentaid.gov for loan programs and your state revenue department for tax questions.
Common misunderstandings about state taxes on forgiveness
- “If it is tax-free federally, it is tax-free everywhere.” Not always. During 2021 to 2025 some states were reported to tax discharges that the federal government excluded. The safer assumption is to check.
- “I will get a bill from my servicer.” Taxes are not collected by servicers. You report income on your own return, and a lender may send a Form 1099-C to you and the IRS for taxable cancellations.
- “The tax is the same as the amount forgiven.” No. You owe tax on the forgiven amount at your rate, not the full amount. The result depends on your total income and your state’s rate.
- “I can wait to see what my state does.” It helps to check early. If your discharge is expected in a later year, you may have time for your state to act, but you should not count on it.
- “Moving fixes it.” Residency on the relevant date matters, and moving only to avoid tax involves rules about domicile that are best discussed with a tax professional.
A hypothetical example may help. Suppose a borrower in a state that follows federal law has a balance forgiven under an income-driven plan in 2026. The forgiven amount would be added to that year’s federal income, and then flows into the state return. If the same borrower instead received PSLF forgiveness, the IRS guidance suggests it would not be counted as canceled debt income. The same debt, two programs, and two different tax results.
Worked example: which states tax student loan forgiveness in practice
Three illustrative borrowers, each with $30,000 forgiven at the end of an income-driven plan in 2026, show how the three groups of states produce different bills. The people and figures are invented, and the rates are simplified assumptions rather than real brackets.
The first borrower lives in Texas, which has no personal income tax. Her forgiveness is taxable federally, so she reports $30,000 of extra income on her federal return, but there is no state return and therefore no state tax on it.
The second borrower lives in a state that starts its return from federal adjusted gross income and has not passed its own exclusion. The $30,000 flows straight onto the state return. If we assume a flat 5 percent state rate for illustration, the state bill is about $1,500 on top of the federal tax.
The third borrower lives in a state that has decoupled from the federal rule and enacted its own permanent exclusion for forgiven student loans. The $30,000 is subtracted on the state return, so the state bill is zero, even though the federal bill is the same as the other two.
The federal treatment is identical for all three; only the state rule changes. That is why the question of which states tax student loan forgiveness cannot be answered from the federal rules alone, and why borrowers in the second group have the most reason to plan ahead.
Checklist: estimating the state tax on forgiven loans
- Confirm the federal treatment first. If the forgiveness is excluded federally, as PSLF and disability discharges are, most states exclude it too. Our guide on whether student loan forgiveness is taxable covers each program.
- Find your state’s starting point. Your state return either begins from federal adjusted gross income, from federal taxable income or from its own definition. The instructions for the main state form say which.
- Look for a subtraction line. States that exclude forgiveness usually list it among subtractions or modifications in the form instructions.
- Check the conformity date. Some states conform to the federal code as of a fixed date. If that date is before 2026, the state may still follow the old exclusion; the state revenue department publishes conformity updates.
- Estimate the amount. Multiply the expected forgiven balance by your state’s marginal rate for a rough figure, then refine it with the state’s tax calculator or a professional.
- Plan the timing. If a discharge can land in either of two tax years, the choice can change your bracket in both. Ask the servicer when the discharge will post.
- Keep the 1099-C with your state records. State auditors match federal data, so consistency between the two returns matters.
Who this guide does not apply to
Borrowers whose forgiveness is excluded from federal income, including PSLF, Teacher Loan Forgiveness and death or disability discharges, rarely need to worry about which states tax student loan forgiveness, because almost every state follows the federal exclusion for those programs. The exceptions are rare enough that a quick check of the state instructions settles the question.
Residents of the states with no broad personal income tax are also outside the discussion for state purposes, although they still owe federal tax on income-driven forgiveness. And borrowers who moved during the year face a different question: part-year residency rules decide which state, if any, can tax the forgiven amount, usually based on where you lived on the date of discharge.
For a state-specific walk-through, see does Illinois tax student loan forgiveness and does California tax student loan forgiveness, and for the federal income question read whether student loan forgiveness counts as income. The Federation of Tax Administrators links to every state revenue department for official guidance.
Sources and further reading
- IRS Tax Topic 431: Canceled debt
- Capitol News Illinois: Illinois borrowers could face a tax bomb in 2026
- TaxAct: Which states will tax your canceled debt (October 2022)
- Reed Tax: 2026 student loan forgiveness tax guide
- NATP: Student loans and taxes under H.R. 1
- Federal Student Aid: Forgiveness, cancellation and discharge
Frequently asked questions
Which states tax student loan forgiveness?
There is no single official list. Most states with an income tax follow federal income, so forgiveness taxable federally in 2026 is generally taxable at the state level, except where a state has its own exclusion.
Do states without an income tax tax forgiven loans?
No. States that do not tax wage income do not impose income tax on canceled student debt.
Is PSLF taxed by states?
PSLF-type forgiveness is not treated as canceled debt income federally, per the IRS, so states that follow federal rules generally do not tax it. Check your state.
Did the federal exemption expire?
Yes. The exclusion covers discharges after December 31, 2020 and before January 1, 2026, according to the IRS.
More questions on which states tax student loan forgiveness
Which states taxed forgiveness between 2021 and 2025?
Reports named several states, including Arkansas, Indiana, Mississippi, North Carolina and Wisconsin, but I could not verify current status for each. Check your state revenue department.
Can I avoid state tax on forgiven loans?
Possibly through an exclusion such as insolvency or a state subtraction. A tax professional can confirm.
Where do I get an official answer?
Your state department of revenue or taxation is the authority on state tax treatment.
Which states tax student loan forgiveness if I moved during the year?
Part-year residents generally report income to the state where they lived when it was received. For cancelled debt, that is usually the discharge date, so the state of residence on that date typically decides the treatment.
Do states tax PSLF forgiveness?
Almost all states follow the federal exclusion for PSLF. Check your state instructions to confirm, especially in a state that uses its own definition of income rather than federal adjusted gross income.
Can my state tax forgiven loans if the federal government does not?
In theory a state can define income differently, but in practice states rarely tax forgiveness that federal law excludes. The common situation is the reverse: a state excluding forgiveness that federal law now taxes.
This article is general information, not legal, tax or financial advice. Rules change, so confirm details with the official sources above or a qualified professional before you act.