Congratulations CNOrange on your newfound freedom from student loan debt!
Typically, student loan debt cancellation is treated as income, and a 1099-C for the cancelled balance would be issued. There are some notable exception to this rule, and based on the information you have provided, it appears you will not need to pay federal income taxes on the discharged debt.
Currently, under a provision of the American Rescue Plan Act (ARPA) student loans cancelled due to sufficient time in repayment under an income driven repayment (IDR) plan are being treated as tax free at the federal level through 2025. Since you indicated that your debt was forgiven after making the appropriate number of payments, it is likely you were on an IDR, or possibly are benefiting from Public Service Loan Forgiveness. Those who earn forgiveness of their educational debt under the Public Service Loan Forgiveness (PSLF) Program are exempted from federal taxation on that income (and there isn't an expiration date for those discharged debts.)
Additionally, student loan debts discharged under the Total and Permanent Disability (TPD) Discharge program are also exempt from federal taxation through 2025 as a provision of the 2017 Tax Cuts and Jobs Act.
There is a possibility that your student loan servicer will issue a 1099-C for the cancelled debt - it is easier for them to issue the document and allow you to explain to the IRS why it's an exception, than it is for them to determine who is exempt from taxes. If you receive that document, you absolutely need to include it in your return. You would then need to add a Form 982 to the return to report the amount that was excluded from income on the basis that it was cancelled educational debts.
One last thing to consider - you didn't tell me which state you live in. The states are currently split on tax treatment. In some states, the debt cancellation would be tax free, and in others, you could owe taxes on the full amount of cancelled debt. Currently Indiana, Mississippi, North Carolina and Wisconsin have all confirmed they will tax this type of loan cancellation. Other states are still considering the issue.
Clarissa
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
