Do I have to claim public service student loan forgiveness on my California Tax Return?

[KrisD15]

No, you do not need to claim that on your California Return. 

California does not conform to ARPA forgiveness of loan payments, but the PSLF is not part of the ARPA. 

According to Bill AB 461

"Under federal and state law, gross income generally includes the amount of any discharge of indebtedness of the taxpayer. Under an exception to this general rule, gross income does not include any amount from the forgiveness (in whole or in part) of certain student loans, provided that the forgiveness is contingent on the student’s working for a certain period of time in certain professions for any of a broad class of employers."

[Farmboy Luke]

@KrisD15 

I used the link you provided for AB 461.

Under the effective date it says: "As a tax levy, this bill would be effective immediately upon enactment and specifically operative for taxable years beginning on or after January 1, 2017, and before January 1, 2022." 

Does that mean that loans cancelled under the PSLF program after January 1, 2022 are taxable in California? 

[PattiF]

No, they are not taxable.

 "According to the Internal Revenue Service (IRS), student loan amounts forgiven under PSLF aren’t considered income for tax purposes".

Please see this from Federal Student Aid for more information. 

@Farmboy Luke 

[Farmboy Luke]

I know the IRS does not tax loans forgiven under the PSLF as income. The original poster and I are asking about California. Does California tax loans forgiven through the PSLF program as income?

The California law that the original tax expert linked expired on Jan 1, 2022. So what happens to loans forgiven during 2022? I read California's Form 540 Booklet and it does not have a clear answer.

Again the question is does California tax these?

[PattiF]

No, they are not taxable in California unless you fall into one or more category outlined here:

• For example, if you’ve been making IDR or PSLF payments for years and have gotten your balance down to $10,000, this amount could be discharged through Biden’s debt relief. In that case, you could be forced to pay taxes in California.
   
• Or let’s say you were a Pell Grant recipient in college and, since graduating, you’ve been making PSLF or IDR payments and have gotten your balance down to $20,000. The Biden administration’s one-time relief could likewise clear that debt, and then you’d have state tax obligations.

@Farmboy Luke